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11/19/20 8:10 AM

Unclaimed Property Update: IRA Landscape Could Be Changing Again

by Benjamin Bell

Update hand writing with a blue mark on a transparent boardH.R. 8696, known as “The Securing a Strong Retirement Act of 2020” or “the SECURE Act 2.0”, introduced in the House of Representatives on October 27, 2020, is a bipartisan bill aimed at further protecting and enhancing retirement savings. There are two key aspects of this bill that if enacted, would change the way individual retirement accounts (IRAs) are treated:

1. The age for required minimum distributions (RMDs) from employer-sponsored defined contribution plans and traditional IRAs would increase to age 75.  This provision would be effective for individuals who would turn age 72 after December 31, 2020.

The impact on IRAs would be similar to the impact under the SECURE ACT of 2019 (SECURE ACT) adding another level of analysis required to calculate the RMD date and the trigger date for escheatment. Under the SECURE ACT, we now consider whether the owner turned 70.5 after 12/31/2019. Under the SECURE Act 2.0, we would also have to consider whether an owner has turned 72 after 12/31/2020.

Additionally, certain states that have recently revised their unclaimed property statutes specifically reference “age 70.5” as a possible trigger date for escheatment of IRA accounts (except for Vermont which references “age 72”), which is not in line with the SECURE ACT.   The SECURE ACT 2.0 further underscores the present need for all states to ensure their retirement account provisions align with federal law. 

2. RMDs would be waived for individuals with a combined total of less than $100,000 in their retirement  accounts as of December 31st of the year before the individual turns age 75. This would, in effect, prevent the escheatment of living account owners that meet the dollar threshold, because the lack of an RMD would remove the trigger for escheatment.

We asked Michael Giovannini, a partner with Alston & Bird LLP’s State and Local Tax Team, to weigh in with his initial thoughts on the significance of the SECURE Act 2.0. He stated that:

If this legislation passes, it appears likely to cause a sea change in IRA reporting.  For one, in conjunction with the CARES Act [which waived RMDs for the year 2020], there will be a several-years lull in people reaching their required beginning date (RBD), even more so than under the SECURE ACT, as no RBD will occur between 4/1/2020 and 4/1/2025. 

One additional point to note is that under the SECURE Act 2.0, employees would be automatically enrolled in their company’s retirement plan when a new plan is created, meaning that we could see an increase in the number of retirement plans which could, at some point, create accounts that become eligible for escheatment. Given the substantial impact that the SECURE Act 2.0 may have on IRAs, we will continue to follow the bill and provide updates on any new developments.

 For more information regarding this topic or if you are experiencing other unclaimed property challenges, contact MarketSphere Unclaimed Property Specialists for a free consultation.

*Content contained in this article is considered accurate as of the publish date.

Topics: Reporting, Best Practices