The SECURE Act and Your Retirement

By now you’ve probably heard of the SECURE Act. The Setting Every Community Up for Retirement Enhancement Act was signed by the President in December 2019. Here are some of the most notable changes the SECURE Act will bring.

Say Goodbye to the Stretch IRA

The SECURE Act may benefit many savers, but estate planners have costly changes to look forward to. The stretch IRA, or the provision allowing non-spouses who inherit retirement accounts to stretch withdrawals over their lifetime, has been eliminated. Instead, the inherited IRA must be disbursed within 10 years of the original owner’s death. This may disrupt many current estate plans as it forces beneficiary withdrawals with very limited exceptions. This can create a heavy tax burden for IRA inheritors, which applies for IRA inherited in 2020 and beyond. This change makes advanced tax reduction planning critical.

Irrevocable Trust owners will also take a hit. For those trusts that prevent the beneficiary from touching the account for a certain amount of time, you’ll still be forced to withdraw the balance at year 10. This can potentially harm the beneficiary as the money will count towards their taxable income, meaning they’ll likely be put into a high tax bracket and therefore pay much more in taxes.

RMD Age Change & IRA Changes

The RMD age will bump up to 72, giving you an extra year and a half to contribute to your IRA accounts and allow the account to grow. If you are taking advantage of the catch-up contribution, this extra increase in time would allow you to effectively lower your taxable income by several thousands of dollars, depending on the type of IRA or retirement plan that you have.

Catch-up contributions are only available if your retirement plan allows it, so consult your plan’s administrator to determine availability. You will eventually have to pay taxes on that income when you withdraw funds, but if you don’t need the money in the immediate, it may be a good idea to put more into your retirement plans.

Another positive change for those already saving, you’ll now be able to contribute to your IRA at any age. The 70.5 age restriction has been removed, allowing older workers to continue contributing towards their retirement account. Depending on certain criteria, after 70.5 an employee may add a yearly deductible contribution up to $7,000 or $14,000 for couples. Late planners, this may benefit you greatly, if you take advantage.

Retirement Saving for All

The SECURE Act reduces the hours required to work in order to qualify for employer retirement plan eligibility. Many part-time employees will be able to enroll in employer-sponsored plans, such as 401(k), 403(b), and IRA. This can allow part-time workers with 1,000 hours worked per year more opportunity to save for retirement, whether the employee is new to the workforce or slowly leaving.

The act also provides more incentive for employers to offer such plans by increasing the cap of employee auto-enrollment in safe harbor retirement plans from 10% to 15% of wages. The SECURE Act will provide a maximum tax credit of $500 per year to employers who create automatic enrollment for 401(k) or SIMPLE IRAs. Employers are encouraged to add more annuities to 401(k) plans through this act by removing the legal liability if the annuity provider fails to provide and allowing options instead of forcing the lowest-cost plan. These changes may allow for more potential growth for employees and employers.

What Now?

You may be confused on your next step, and between the estate planning changes, RMD age bump, IRA changes, and new ways to save for retirement, we don’t blame you! It’s important to meet with a professional that can properly coordinate your retire and estate planning with the SECURE Act in mind, especially if you need to make changes. At RGA, we stay up to date with the latest laws to ensure our retirement planning is effective to help reach your retirement goals. Click the link below, call 1-800-467-8152, or email to schedule a time to chat with our team of financial professionals about a customized tax reduction plan.


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