The Setting Every Community Up for Retirement Enhancement act, also known as the SECURE Act, passed in December 2019. The new law is designed to help more Americans save for retirement. But, of course, detractors don’t agree with everything the final law imposes, such as the elimination of stretch IRAs. This article covers some of the highlights you should be aware of so you can adjust your retirement planning accordingly.
Statistics show roughly one-third of Americans are not saving for retirement. The reasons? Many small businesses can’t afford to offer retirement benefits, so their employees miss out on that chance to save. Additionally, part-time employees weren’t eligible to receive retirement benefits under past regulation. When the SECURE Act passed, it eliminated these barriers to make saving for retirement achievable for many of these people. Below we’ll explain how some of the provisions work and what you can expect.
What Elements Affect You Since the SECURE Act Passed:
Help for Small Businesses
By 2021, small businesses can participate in a variation of multiple employer plans (MEPs). This provision makes it easier for them to afford and offer retirement benefits. By this time, part-time employees can also participate in employer-sponsored retirement plans, which is a big plus for them. There’s also a tax credit for auto-enrollment.
Stretch IRAs Are No More
In the past, if you inherited an IRA from a parent, you could stretch the required minimum distributions (RMDs) across the years of your remaining life expectancy. The SECURE Act eliminates non-spousal stretch IRAs. If you inherit one beginning January 1, 2020, you have to withdraw all funds within a 10-year timeframe. You don’t have to take annual distributions, and you can wait until the 10th year to withdraw it all. But, any way you do it, you’re looking at paying exceptionally large chunks of income tax on the distributions.
Age to take RMDs Is Now 72
The required minimum distribution (RMD) age is pushed from 70 ½ to 72 years of age. This is fantastic for the average person because you get more time to build wealth in your IRA.
Contributions to Traditional IRAs
Under the SECURE Act, the cutoff age of 70 ½ is eliminated for contributing to your traditional IRA. Many Americans are working past retirement age, and as long as you have earned income, this exciting provision applies to you.
Annuities Approved as Payout Options
Additionally, when the SECURE Act passed, it solidified the proposal to allow annuities as payout options in 401(k)s. So, employers can offer employees the ability to convert their hard-earned savings into guaranteed lifetime income via annuities. But the employers are protected and not liable if the annuity insurer ends up not paying claims.
The Bottom Line
These are just a few aspects of the SECURE Act that impact retirement planning as we know it. If you’ve planned to leave a legacy for your children through your IRA or 401(k), you need to have a sit-down with your financial planner to discuss alternative options that will alleviate their tax burden on those inherited funds, if possible. Otherwise, we are hopeful that many elements of this law will truly allow and encourage more Americans to begin saving for retirement.
If you want to discuss how self-directed retirement plans are affected now that the SECURE Act passed, contact Advanta IRA.
This article was written for informational purposes only and is not intended to provide and should not be relied on for financial or tax advice.