The secure act
The SECURE Act, which stands for Setting Every Community Up for Retirement Enhancement, was signed into law at the end of 2019. Below is a summary of some key provisions of the law as well as planning considerations that are presented as a result:
- Required Minimum Distributions delayed to age 72 – Prior to this law RMDs had to begin at age 70.5, so this delays that requirement but only for those who haven’t already started their RMDs. There is now more opportunity for your retirement accounts to grow and defer taxes. This could be a good opportunity to review your tax situation and consider or expand Roth conversions.
- No age limit on IRA contributions – The age limit of 70.5 for IRA contributions is eliminated so as long as you have earned income you can continue to contribute.
- Elimination of the “stretch” provision for beneficiaries – Those inheriting an IRA used to have an option of “stretching” the required distributions over their life expectancy. That rule has been changed and inherited retirement accounts must be distributed within 10 years. However, there are exceptions as this does not apply to spouses, minor children, chronically ill, disabled and anyone not more than 10 years younger than the account owner. This can have a significant impact for certain families, and it could be a good time to review your estate plan.
- New parents can take penalty-free withdrawals – In the first year of birth or adoption, parents can take up to $5,000 each from retirement plans. However, though the penalty is avoided taxes still apply. The flexibility that this option adds is nice, but it can also take away from the long-term growth of the account, so I recommend only doing this if necessary.
- Repay student loans with 529 funds – You didn’t use to be able to repay student loans with 529 funds, however, now you can use 529 accounts to repay up to $10,000.
- Employer plan changes – There were numerous changes to small business and employer sponsored plans. Of all the changes these are probably the most significant as it relates to the bill living up to its name of setting people up for retirement. Many changes were put in place to increase access to retirement plans for more people. If you are an employee some changes may affect your plan. If you’re an employer you should discuss your plan with your plan administrator, and if you don’t have a plan consider starting one. Some changes include:
- Allowing small businesses to join with other employers to set up 401K plans, with reduced cost and liability.
- An increased tax credit to small businesses that start a plan, and a new tax credit for those that include an “auto-enrollment” in the plan.
- An ability to include annuities in retirement plans to create a stable retirement income.
Requiring 401K statements to include a calculation of what your projected monthly retirement income could be based on your balance.
If you have questions on how any of this may impact you, please feel free to contact me or shoot me an email at firstname.lastname@example.org.
Advisory services offered through Arbor Point Advisors. Securities offered through Securities America Inc., Member FINRA/SIPC. Arbor Point and Securities America are separate companies. CA Insurance #0E88557