The Secure Act:
Let’s take a moment and update everyone on the SECURE Act and the recent changes to our retirement system it introduced. On December 20, 2019, President Trump signed a spending package into law, part of which included the SECURE Act (Setting Every Community Up for Retirement Enhancement). This is one of the largest changes to our retirement system that we have seen in years. Here are the main changes you need to be aware of:
RMD Age Delay
The first is it delays the age at which you must take a required minimum distribution or better known as RMD to age 72. This will help with lots of the confusion I have heard from the old age of 70 ½ and having to take the distribution out by April 1st the following year. Now to make things simpler, we will begin RMDs in the year you turn 72. This is affective as of January of 2020. So, if you turn 70 this year, you’re in luck because you can now delay an extra 2 years. In addition, the IRS has recently published new life expectancy tables that allow you to take out a smaller percentage each year. The life expectancy table went from the first year dividing your qualified assets by 27.4 years to now dividing them by 29.1 years for the first distribution.
The next item is that the SECURE Act allows you to continue to contribute to an IRA past age 70 ½ and have no age restriction on contributions if you have earned income.
The big disadvantage is that it has now eliminated the stretch IRA. your non-spouse- beneficiaries will now be forced to take any distributions within the first 10 years of inheriting an IRA. This could cause for some additional tax consequences on the beneficiaries.
Small Business Plans
For small businesses, it allows them to join multiple employer plans to come together and be able to offer plans for their employees.
The new law creates incentive for qualified plans to invest in annuities, giving savers some more income options through their plans. In the past most employers have avoided annuities on fears that the carriers would not be allowed to honor their financial commitments. Now there are rules in place that protect the companies from being sued if the carriers fail to make its financial obligations.
529 plans may now distribute up to $10,000 tax free to pay of college loan debt.
In conclusion, the SECURE act has some positives and some negatives. The RMD age has been long overdue for a push back as social security get pushed back so should have the RMD age and life expectancy tables. The fact that you can still save in an IRA if you are still working seems like there should have never been that limitation in the first place. Unfortunately, the elimination of the standard “stretch” IRA will most likely cause some additional taxes to be paid for those inheriting larger IRAs.