A Closer Look at The SECURE Act

Patrick Cote |

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?

“Stretch” IRAs

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law, inherited IRA distributions no longer have an annual required withdrawal amount, but all of the assets must now be withdrawn by last day of the 10 year period. 

Five types of beneficiaries are exempt from the new rules.  They are known as "eligible designated beneficiaries," or EDBs. These beneficiaries will continue to operate under the old rules.

If you have an IRA that you planned to leave to beneficiaries based on the old rules, work with your advisor and estate planning attorney to evaluate the impact of this new rule on your financial and estate planning strategies.  For beneficiaries of stretch IRAs, you will want to carefully evaluate the tax implications of how you choose to make your withdrawals over the 10-year period.  

The new rules are effective January 1, 2020.  If you inherited an IRA from the original owner who passed away prior to January 1st, you are not impacted by the changes. 

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.

If you’re turning 70 ½ in 2020 and had planned on taking an RMD or you are still working, talk with an AssetGrade financial advisor to reconsider your withdrawal options. 

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.

Call us today with your question regarding the new SECURE Act.  It’s never too late or too early to start working on your plan!