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How the Secure Act Affects Retirement Plans

Posted at 09 H in by Ralph Pence 0 Comments

When Congress passed the Setting Every Community Up for Retirement Enhancement (SECURE) Act on December 20, 2019, it set into motion a law that would enhance every individual’s ability to plan for retirement.

Retirement Funds

What is the SECURE Act?

The major accomplishments of The SECURE Act include allowing more people to create 401(k) plans and to contribute them longer. In summary, the Act achieved the following:

  • nixed the maximum age of 70 ½ years old for contributing to traditional individual retirement accounts (IRAs)
  • increased the age to 72 by which an individual must begin withdrawing required minimum distributions (RMDs) from the retirement accounts
  • opened up 401(k) plans to those employed part-time for three years or longer
  • increased the number of lifetime income strategy options
  • created a penalty-free early withdrawal of up to $5,000 from retirement accounts for parents for qualified expenses within one year of the birth or adoption of a child
  • required those who inherit a retirement account when its original beneficiary dies to begin distributions within 10 years
  • created a penalty-free early withdrawal of up to $10,000 from 529 plans for parents for student loan repayment

Benefits of the SECURE Act

The SECURE Act makes it easier to save for retirement. Individuals benefit from increases in the age to which a person can contribute to a retirement account and the age at which they must dip into the fund. This helps an American public that has chosen to work longer in their careers rather than take an early retirement. The law became effective on January 1, 2020.

secure act benefitsMore Flexibility with Age Limitations

That leaves some wiggle room for those who turned aged 70½ during 2019. They may have begun taking RMDs (if that describes you, meet with your tax advisor). Most people should continue the RMDs, but each taxation situation differs. Your CPA or tax advisor can help you determine the right choice for your financial situation.

As long as you continue to work, you may continue to contribute to your IRA until aged 72. That change makes traditional IRAs more similar to 401(k)s and Roth IRAs.

Part-Time Employment

Perhaps you joined or re-joined the workforce as a part-time employee. Previously, those who worked less than 1,000 hours per year remained ineligible to open a company 401(k) plan. Under the SECURE Act, each part-time employee may also open a 401(k) plan sponsored by their company. The only exception is collectively bargained plans. Visit your human resources department to learn how to enroll in the company 401(k).

Inheritance

If you inherited an individual’s IRA or 401(k), you must begin distributions within 10 years. Previously, you could use the retirement account throughout your single life expectancy as a monthly income source. Under the new law, you must begin withdrawing assets within 10 years from the date of death of the original owner who died on or following January 1, 2020. The exceptions to this rule are:

  • a disabled beneficiary,
  • a surviving spouse,
  • a minor child,
  • beneficiaries less than 10 years younger than the deceased.

Congress’ passage of The SECURE Act ensures a longer retirement planning phase for individuals and makes it easier for those work part-time to start and grow their retirement funds. Contact Advisor’s Resource today to learn more about saving for your retirement.

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