The SECURE Act is Here, For Better or Worse
Over the past year, we have closely followed and detailed the progression of the SECURE, (Setting Every Community Up for Retirement) Act. The bill was signed into law by President Trump on December 20th, 2019, applying to 2020 and beyond. The SECURE Act represents the most sweeping set of changes to retirement legislation in more than a decade.
While elements of the SECURE Act provide enhanced opportunities for individuals and small business owners, many retirement planning specialists, my team included, have had reservations about what this new law will mean for millions of American retirees with significant assets in traditional IRAs and retirement plans.
By far the biggest detriment of the Act is the elimination of the “stretch IRA.” Under previous legislation, children and spouses could inherit IRAs and only take a small distribution each year over the course of their lives, allowing the remainder of the funds to grow. This new law states that only spouses are allowed to stretch an IRA for the remainder of their lives, and non-spouses must exhaust the funds via distributions over a period of only 10 years. These larger, expedited distributions will incur much more burdensome tax bills – a real slight to all of the retirees who saved for so long to build a legacy for their kids, grandkids, or other non-spousal beneficiaries. A few exceptions to this rule are disabled children, chronically ill individuals, and minors (until they reach the age of maturity).
"How will I be affected by the SECURE Act?"
Despite this major drawback, there are several items provided in the SECURE Act that will be helpful for individuals and retirees:
Due to increased life expectancy, the age to begin taking required minimum distributions from IRAs has increased from 70.5 to 72 years old. This gives most individuals another year or two, depending on their birthday, to start the withdrawal process.
Individuals can also continue to contribute to their IRA even if they are over 70.5 and still working.
Part-time employees now only have to work 500 hours per year (for at least three consecutive years) to qualify to create a 401k.
Up to $5000 may now be taken from a retirement account within one year of a child’s birth or adoption, without the previous 10% penalty applied for early withdrawal.
Annuities are now allowed within 401k plans offered by providers. However, each plan may only offer an annuity from one or two insurance carriers, severely limiting the ability to tailor or customize the annuity to suit each individual’s needs.
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