SECURE ACT becomes law meant to address the need American Families have for accessing retirement savings and lifetime income once in retirement.
On December 20, 2019, Congress and the White House passed into law the SECURE Act with the design of improving access to retirement savings and lifetime income for more Americans.
“Setting Every Community Up for Retirement Enhancement” SECURE Act. The legislation is far reaching and has yet to be fully analyzed by the legal community or financial advisors However, several key changes and enhancements effecting investors and their beneficiaries are clear.
Effective this year, the new age to begin mandatory required distributions from IRAs and workplace tax–sheltered plans such as 403(b)s and 401(k)s moves from age 70½ to age 72. So those Americans turning 70 this year can now delay their required withdrawals until age 72. Americans over the age of 70½ now can contribute to an IRA if they have earned income.
Families can now make penalty free withdrawals up to $5,000 for a birth or adoption of a child and under certain stipulations this withdrawal can be treated as a rollover avoiding full taxation. Also withdrawals can be made from Educational IRAs or 529s to pay student loans and certain apprenticeship programs. There is an exciting new provision allowing foster care costs to become eligible for income limits for retirement plan contributions.
The SECURE Act creates favorable tax credit incentives for small businesses to open a new 401K. It also extends 401k participation and eligibility to part–time workers and it allows 401(k) plans to offer lifetime income annuities with newly defined and relaxed requirements.
The ACT allows for a simplified multi-employer plan (MEP) 401K. This should be of interest to Missouri businesses looking to set up a new 401k but have been put off by the expense of administration costs. Hopefully millions of Americans across the country will become eligible for a workplace 401k in the coming years.
Importantly, too, the ACT eliminates the often utilized “stretch IRA” provision which allows non–spouse beneficiaries such as adult children to inherit IRAs and elect to “stretch” the taxation over their life expectancy. Under the new rules most non–spouse beneficiaries will have only 10 years in which to pay taxes on mom’s or dad’s inherited IRA. This will result in more taxes paid sooner for many heirs of IRAs after 2020. There are grandfather provisions as the new rule begins in 2020 for non–spouse IRA beneficiaries, and a few exceptions to this new rule are included for disabled non–spouse heirs and siblings.
One can see that the intent of the SECURE Act is to further remove legislative barriers to retirement savings for Americans. Now, as in the past, the work of saving and investing for the future falls to the individual and families across the country. So when it comes to saving for retirement, education, and long term care costs, our firm says “start early and stay late”.