New Private Foundation Tax Rate

January 16, 2020

The new year has brought us the Setting Every Community Up for Retirement Enhancement Act of 2019, referred to as the SECURE Act, which contains a number of significant changes to IRA and 401(k) retirement plans.   

Changes include:

  • Repeal of maximum age at which traditional IRA contributions can be made
  • An increase to age 72 for beginning to take required minimum distributions
  • Requirement that the plan benefits inherited by most non-spouse beneficiaries must be paid out by the 10th anniversary of the plan holder’s death.

Another major change included in the new law regards private foundations. Prior to 2020, a private foundation’s investment income was taxed at 2%. If certain distribution requirements were met, the excise tax was reduced to 1%.

Under the SECURE Act, the excise tax is set at a flat 1.39% as of the beginning of 2020, regardless of the amount of distributions. This means that it is no longer necessary to monitor how much needs to be distributed to qualify for a lower excise tax rate.

For questions about the SECURE Act and how this impacts you, please contact Richard Lee at 301.231.6268.