What Everyone Should Know About the SECURE Act
(Setting Every Community Up for Retirement Enhancement).
We’ve outlined the top 10 changes brought about by the SECURE Act. Although there are several enhancements to retirement savings and distributions, the elimination of the Stretch IRA may have an impact on your heirs, so we recommend discussing potential ramifications with us during your next financial planning meeting.
- The Required Minimum Distribution (RMD) age is being moved from 70½ to 72, providing an extra 18 months to let retirement funds grow before being forced to tap into them.
- There are no age limits for investing in a traditional IRA. The limit was previously 70½, but now contributions can be made to a traditional IRA for those working into their 70s and beyond. There are currently no age-based restrictions on contributions to a Roth IRA.
- Part-time employees will have access to 401(k) plans, providing they have worked at least 500 hours per year for at least three consecutive years and who are 21 years old by the end of that three-year period.
- Penalty-free withdrawals are now available for the birth or adoption of a child. Each parent can withdrawal up to $5,000 from a retirement account without paying the usual 10% early-withdrawal penalty.
- The Act requires 401(k) plan administrators to provide an annual “lifetime income disclosure statement” to plan participants, so they can see how much money they could get each month if their 401(k) account balance was used to purchase an annuity. The SECURE Act will also make it easier for 401(k) plan sponsors to offer portable annuities and other “lifetime income” options to plan participants by taking away some of the associated legal risks.
- The Act will increase the 10% cap on “Qualified Automatic Contribution Arrangement” (QACA) automatic contributions up to 15%, after a worker’s first year of participation. This feature allows companies offering QACA’s to ultimately put more money into their workers’ retirement accounts easing them into higher contribution
- To help small businesses offer retirement plans, the Act will increase the tax credit to 50% of a small business’ retirement plan startup costs. The $500 per year tax credit limit will be increased to a maximum credit of $5,000.
- Amounts paid in the pursuit of extended study (such as the pursuit of graduate or post-doctoral study or research) will be treated as compensation for purposes of making IRA contributions, allowing students to begin saving for retirement sooner. Similarly, “difficulty of care” payments to foster care providers are also be considered compensation when it comes to 401(k) and IRA contribution requirements.
- Credit card access to 401(k) loans will be prohibited, no longer allowing employees to access plan loans by using credit or debit cards.
- The “Stretch” IRA for non-spouse beneficiaries who are greater than ten years younger than their spouse is being eliminated. Distributions over the life expectancy of a non-spouse beneficiary would only be allowed if the beneficiary is a minor, disabled, chronically ill, or not more than ten years younger than the deceased IRA owner. For minors, the exception would only apply until the child reaches the age of majority.
Source: adapted from https://www.kiplinger.com/slideshow/retirement/T047-S001-how-the-secure-act-will-impact-retirement-savings/index.html
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