Secure Act

With a Happy New Year come new tax laws… Well, in 2020 they did!

You have probably seen the news that the SECURE Act (which stands for Setting Every Community Up for Retirement Enhancement) was signed into law on December 20, 2019. The goal of the new law is to take steps towards solving the retirement crisis in the United States.

Some of the new law’s provisions may affect your retirement plan.

Here is what’s inside.

No more age limit for IRA contributions.

Under the old rules, any contributions to Individual Retirement Accounts (IRAs) were prohibited beyond age 70 ½. The new law removes that limitation. Under the SECURE Act, individuals of any age can contribute to IRA accounts, as long as they continue to receive “compensation” (earned income from wages, salary, or self-employment).

Bottom line: This is good news for those who want to work and contribute to retirement savings accounts.

Required Minimum Distributions delayed until age 72.

Required Minimum Distributions (or RMDs for short) is the amount of money that must be withdrawn from traditional, SEP, and SIMPLE IRA accounts when you reach a certain age. The old law placed that age at 70 ½, which made it confusing to understand and apply. The SECURE Act delays the start of RMDs until age 72.

Important note: This change only applies to individuals who turn 70 ½ in 2020 or later. So, if you turned 70 ½ on December 31, 2019, you will have to follow the old rules.

Bottom line: If you are already withdrawing more than the required minimum amount from your IRA, the new law likely won’t affect you. If you would prefer to delay the start of RMDs and qualify under the age rules, then the new law may create some tax planning opportunities for you.

No more “stretch IRA” (with a few exceptions)

Under the old rules, the non-spousal beneficiaries of an IRA could draw down the account (and pay related taxes) over their lifetime. This was known as a “stretch IRA”. Under the new law, the stretch IRA is gone. Non-spousal beneficiaries of an IRA must now draw down the account within 10 years of the death of the original account holder.

This rule comes with a few exceptions. If the beneficiary is disabled, chronically ill, or no more than 10 years younger than the original IRA owner, then lifetime distributions are still allowed. If the beneficiary is a minor, the 10-year rule doesn’t kick in until the child reaches 21 years old.

Bottom line: Check your listed beneficiaries, and talk to us about a Plan B for your IRA.

Greater access to retirement savings plans for part-time workers

The old rules gave part-time employees limited access to employer-sponsored retirement savings accounts. Under the new law, more part-time workers may become eligible to participate in retirement savings plans. This applies to employees who either work 1,000+ hours during one year, or have 3 consecutive years with 500 hours of service.

One notable exception to this rule: it does not apply to employees who are a part of a collective bargaining agreement.

Bottom line: If you are a part-time employee, you may be eligible to participate in a retirement plan at work.

What does all of this mean for your retirement?

The answer is, as always, “It depends”. There are some things you may consider doing on your own (like checking beneficiaries on your Employee Sponsored Retirement Account and inquiring with your employer about your eligibility for new benefits).

If you have any questions about how the new SECURE Act will affect your retirement, give us a call.

Happy New Year,
Eric Nelson