If you care about saving for the future, you’ll want to pay attention to some changes the government made to retirement accounts in December 2019. The new legislation that was passed is known as The SECURE Act. SECURE stands for “Setting Every Community Up for Retirement Enhancement,” and it’s goal is to change the way Americans save for and spend down their retirement savings. Let’s unpack some of the overarching themes of the SECURE Act to understand the new retirement landscape.
Part-Time Workers and 401(k) Plans
The nature of the economy has changed over the years for a number of reasons (Ex. cut hours, gig economy, desired flexibility). Part-time work is more accessible than ever. With the new tenants of the SECURE Act, Employers are now required to allow part-time employees, who’ve worked at least 1,000 hours in a calendar year (or 500 hours for 3 consecutive years), the chance to participate in a company sponsored 401(k) plan.
Employer Retirement Plan Benefits
The SECURE Act will make it less cumbersome for small businesses owners to set up “safe harbor” (Safe Harbor provides certain IRS protections) retirement plans which are easier to manage and less expensive. Additionally, new tax credits will be provided for companies who set up a 401(k) or SIMPLE IRA with auto enrollment.
The SECURE Act will make it easier for companies to offer annuities through sponsored retirement plans by relaxing regulations.
Required Minimum Distribution Age
Americans are living longer and thus, retiring later and later. That being said, the SECURE Act increased the new RMD (Required Minimum Distribution) age from 70 1/2 to 72 years old. This means you can allow your money to grow for a longer period of time as you approach retirement.
Maximum Age For IRA Contributions
Paired with the new RMD age of 72, you no longer have to cease contributions at age 70. The age limit for traditional IRA contributions has been eliminated.
Penalty-Free Withdrawals For Children
For new parents, you will now have the ability to use up $5,000 from 401(k) plans penalty-free for the birth or adoption of a child.
Penalty-Free Withdrawals For Student Loan Repayment
Up to $10,000 from 529 Plans can be withdrawn penalty-free for the repayment of specific kinds of student loans.
Stretch IRA Changes
Pre-SECURE Act, if you inherited an IRA or 401(k) from a parent, you could spend it down over your whole lifetime (Hence the name “Stretch”). The new requirement mandates that people withdraw from inherited retirement accounts within 10 years.
Whether in or approaching retirement, the SECURE Act is going to affect you in some way. In light of the new law passing, what do need to act on? What do you need to change? What do you need to teach or tell someone else? Oorah!
*For more in-depth detail, please click here to read an outline of the SECURE Act from the House Committee on Ways & Means.*