The Setting Every Community Up for Retirement Enhancement (SECURE) Act will take effect on January 1, 2020. This piece of legislation brings the first major retirement reform since 2006 - and with it, some beneficial (and not so beneficial) news for those looking to retire. There are 29 provisions in the bill, but here are four immediate areas that might affect your financial, retirement, and estate planning.
About your 401(k)
For automatic-enrollment safe harbor plans, the payroll contribution cap has been increased from 10% to 15% for plans starting after December 31, 2019 and only after an employee has been enrolled for a full year. Furthermore, in-plan annuities will also be offered, which gives consumers more options for retirement income. However, this change comes with fewer fiduciary requirements, which could cause issues down the line.
The Required Minimum Distribution age to be pushed back
Americans’ life expectancy and time in the workforce is longer, so one huge change is that the required minimum distribution (RMD) age that one must start withdrawals from their retirement account is set to be pushed back. In previous legislation the age was 70.5, but under the SECURE Act, the age is pushed back to 72 for everyone born on or after July 1, 1949.
No age limit on IRA contributions
Prior to the SECURE Act, a person could no longer contribute to an IRA after age 70.5, prompting investors to contribute to a Roth IRA upon reaching that age. However, the new law removes age limitations, making it easier to continue to save for retirement with an IRA if you are still working at a later age.
The end of the “stretch” IRA
This is perhaps the trickiest provision of the new law. For those who inherited an IRA, non-spouse beneficiaries (such as children or grandchildren) used to be able to “stretch” the amount of the inherited IRA over their lifetime. Now, the non-spouse beneficiary of an IRA for anyone who passes away on or after January 1, 2020, will only have a period of 10 years to disburse the inheritance, which might create issues for income and estate taxes.
How will the SECURE Act affect you?
We will follow up with a more detailed explanation of the SECURE Act and how it might affect you shortly. However, if you have any questions about the passing of the SECURE Act and how it might affect your retirement, estate, or other financial planning in 2020 or your tax return for 2019, please contact us today.
The Team at Chatterton & Associates