How Will the SECURE ACT Affect You?

Retirement

How Will the SECURE ACT Affect You?

Posted by Dubots Capital Management
5 months ago | February 26, 2020

In December, the president signed new legislation to revamp much of our current retirement planning provisions. The SECURE Act aims to make retirement planning more accessible, and might help you out in other ways as well.

Most of the changes, unless otherwise noted, went into effect on January 1, 2020.

You Can Save Longer!

If you’re still saving for retirement, you aren’t required to stop making contributions to your IRA at age 70 ½. As long as you are still earning income, you can contribute to your IRA indefinitely.

Changes Regarding Required Minimum Distributions

Previously, when you reached age 70 ½, you were mandated to begin taking required minimum distributions (RMDs) from SEP, SIMPLE IRAs, traditional IRAs, and other retirement plans. That has now changed. Going forward, RMDs will go into effect on April 1 of the year following the year in which you turn 72.

For instance, if you turn 72 during the year 2020, you will have to take Required Minimum Distributions by April 1, 2021.

Please note that if you are already required to take an RMD prior to April 1, 2020, you will still need to do so.

Elimination of the Stretch IRA

If you want to pass on your IRA to beneficiaries, or stand to inherit an IRA, you should know that the provisions have changed. Instead of stretching out distributions (along with applicable taxes) over your lifetime, those who inherit an IRA will now be required to withdraw all assets (and pay the appropriate taxes) within ten years.

Some exceptions do exist. Spouses, minor children, disabled or chronically ill children, and beneficiaries who are less than ten years younger than the original IRA owner are not subject to the ten-year rule.

Reviewing your estate plan, and making certain changes, could help you or your beneficiaries to avoid negative effects of this new rule… especially if you are planning on leaving your IRA to anyone other than your spouse.

 

A Few Other Noteworthy Provisions of the SECURE Act

If you work part time… You can possibly now access a retirement plan. If you have logged at least 500 hours in three consecutive years, you can take part in your company’s elective deferral retirement plan. This rule applies to plan years beginning in 2021.

If you need to take an early withdrawal from a qualified retirement plan or IRA… You can take it penalty-free if the money is used for the birth or adoption of a new child (up to $5,000). Certain other tax breaks apply if the money is used for qualified medical expenses.

If you need to pay for education expenses… You can use 529 savings plan funds to pay off qualified student loans, or for higher-education expenses related to qualified apprenticeship programs (up to $10,000 per beneficiary).

Some distributions made after December 2018 might qualify retroactively.

If you’re an employer… You might benefit from tax incentives to open a retirement plan for your workers (available to certain smaller employers for the next three years). Plus, those employers who offer automatic enrollment can now increase employee contributions until they reach 15 percent of pay. Employees can opt out of the increase if desired.

These new provisions could trigger a bit of uncertainty with regard to retirement planning, at least until we all adjust to the new rules. For more information on the SECURE Act and how it affects your own situation, give us a call to schedule an individual consultation.

 

 

 

 

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