A Closer Look at The SECURE Act
By: Susan Powers
The SECURE Act became law on December 20, 2019 and the intent of this new law is to strengthen retirement security. Having enough income in retirement is an important concept in financial planning. When we work with our clients and ask them what financial success means to them, the overwhelming response is security - knowing they will not outlive their assets.
What are the key provisions of the Secure Act and the benefits for you?
A common estate planning tool, if you inherited an IRA, was that you were allowed to “stretch” out the distributions over your life expectancy. Under the new law, inherited IRA distributions no longer have an annual required withdrawal amount, but all of the assets must now be withdrawn by last day of the 10 year period.
Increased age – 72 is the new 70 ½
Required minimum distributions (RMDs) and contributions are both impacted by the law’s change in age. Previously, owners of IRAs and retirement accounts had to begin taking RMDs at age 70 ½. The new age is 72, potentially allowing for more growth in the value of your retirement assets while delaying the impact of taking taxable distributions.
Under the law, you can now continue to contribute to your traditional IRA past age 70½ as long as you are still working.
Qualified birth or adoption distribution
You can now withdraw up to $5,000 per parent from your retirement plan or IRA following the birth or adoption of a child. The 10% early withdrawal penalty will not apply but you will have to pay income taxes on the distribution. In addition, another plus is that you will have the option to repay the withdrawal as a rollover contribution.
New rules for part-time workers
For part-time workers who have been employed at the same company for at least 3 years, you may now be able to participate in your employers’ 401k plan. Most employers will now be required to offer the plan to anyone working more than 500 hours a year for 3 years in a row.
If this rule applies to you, ask your employer how you can enroll in their plan.