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New federal law changes some distribution rules for retirement accounts

piggy bank and cash

If you are planning for retirement, have a college graduate with student loan debt, or plan to have a child in 2020 through birth or adoption, you may want to learn more about a law that passed in December 2019.

The SECURE Act (Setting Every Community Up for Retirement Enhancement) and new IRS regulations have made a few changes to the way you can access your retirement savings accounts, explains Lori Branley, Stanford’s director of retirement programs.

Changing the age for required minimum distributions

The IRS mandates that after you reach a certain age and are no longer working, you must withdraw a minimum amount from your Stanford Contributory Retirement Plan (SCRP) account by April 1 every year. Previously, that age was 70-½ but the SECURE Act has changed the age to 72, starting in 2020. 

You are not required to take the distribution if you still work for Stanford or one of its related entities -- called “controlled groups” -- which includes Stanford Hospital. However, if you retire at age 72 or older, your minimum distributions will need to start by April 1 following the year in which you retire.

Here’s what you should know:

  • This change applies to anyone turning age 72 as of Jan. 1, 2020, or later.

  • If you turned age 70-½ at any point in 2019 and left Stanford, you still have to take the required minimum distribution by April 1, 2020, and every year thereafter. 

  • If you’re already taking the required minimum distribution, you must continue, every year. 

  • The IRS calculates how much you must withdraw, and you may have to pay income taxes on that amount. The IRS penalty for not taking the distribution is 50% of the calculated distribution amount.

Use your 529 Fund to pay down student loan debt

If you have unused funds in your 529 education savings plan after your student graduates, the SECURE Act now allows you to use up to $10,000 over the course of the student’s lifetime to pay toward that student’s loan debt. The law also expands the types of eligible apprenticeship programs you can cover with 529 savings.

  • At Stanford, certain staff, faculty and retirees may also have access to the Tuition Grant Program to help your student pay for undergraduate education (associate’s degree or bachelor’s degree). 

Take a distribution without penalty for birth or adoption of a child

You can now withdraw up to $5,000 from your retirement account for expenses associated with having or adopting a child; you won’t have to pay a penalty on this distribution, though income taxes may apply. And you can repay this distribution as a rollover contribution to your retirement account. 

  • At Stanford, benefits-eligible employees may also have access to the Adoption Reimbursement Program, which will reimburse up to $10,000 per adoption (up to two adoptions) for qualified adoption expenses. If you are having a baby, you may also be able to use your flexible spending account (FSA) or health savings account (HSA) funds for related expenses, instead of taking money from your retirement account. 

Learn more

The SECURE Act changes some program rules not directly related to Stanford benefitssuch as the age limit for contributing to traditional IRAs if you’re still working, and the distribution rules for inheriting an IRAso you may want to review this Fidelity Viewpoints article from January 2020 or speak with a tax advisor to learn more. 

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