What Is the SECURE Act?
The SECURE act stands for Setting Every Community Up for Retirement Enhancement and was signed into law on December 20, 2019. The act focuses mainly on retirement legislation and has been argued to have been the largest piece of retirement legislation to have been passed in the last 13 years. However, within the act there are benefits for College Loan Payments in 529 educational savings accounts and an exemption for birth or adoption expenses from retirement accounts that previously hadn’t existed. Because of these changes it is important for you to be aware how they may impact you or your previous planning approaches to these financial goals. In this update we will explore what has changed and what action steps you should consider as an investor.
IRA Contributions May Now Continue Past 70 ½
Previously, legislation required that contributions to IRAs cease at 70 ½ commensurate with RMDs. There is a growing trend of the workforce of America continuing to work later in life due to the considerations of longevity combined with the phase out of pensions by and large. Much like the legislation that had existed up until this point, contributions are allowed while you are still working, and the SECURE Act will now reflect more closely with such 401(k) rules.
What You Can Do: Contact us at Coastal Wealth Planners to discuss your current preparation for retirement and review how these additional avenues to save may help to strengthen and/or fine tune your plan. This becomes especially important if your plans had already involved working later into life. Schedule Here to Discuss
Required Minimum Distribution (RMDs) have moved from 70 ½ to 72
RMDs will now begin at age 72 for those who turn 70 ½ in the calendar year 2020, the IRS has not provided further guidance due to the late-year signing of the legislation for those who turned 70 ½ in 2019 and may have already started taking RMDs or used the first year deferral.
What You Can Do: If you turn 70 ½ in 2020 you should evaluate if your planned withdrawals make sense with the new legislation with a professional who can integrate these decisions into your financial plan. Schedule Here to Discuss
Long-Term Part time employees will be able to access company 401(k) plans
Previous rules stated that employees must work 1,000 hours annually (full time employment) to be eligible for access to the company 401(k) plan. The SECURE act now opens access for employees who have worked either 1,000 hours in one year or 500 hours over three consecutive years.
What You Can Do: If you previously did not have access and believe that you may qualify based off the rules outlined above contact your employer or HR department to determine eligibility. Schedule Here to Discuss
Inherited IRA Distribution Rules Change
The spousal beneficiary rules still apply that allow the widowed spouse to continue withdrawals at their life expectancy. However, for most other cases there will be a requirement to withdrawal the full balance of inherited 401(k) or IRA balances within 10 years for original retirement account holders that pass away after January 1 2020. Exceptions for the 10-year requirement include spousal inheritant, a disabled or chronically ill beneficiary, a minor child, and beneficiaries that are less than 10 years younger than the original retirement account owner or participant.
What You Can Do: If you have retirement accounts that you plan to outlive you and/or that you have specifically planned to leave to beneficiaries based on prior stretch provisions you should strongly consider speaking to your estate planning attorney as well as a professional financial planner. Schedule Here to Discuss
Small-business owners gain tax credits & other benefits for starting retirement plans
In an effort to continue to expand access to retirement savings and support retirement account participation there is a tax credit of up to $5,000 and allows for small-business owners to more easily join together to offer defined contribution retirement plans called Multiple Employer Plans (MEPs).
What You Can Do: If you are a small business owner who has considered opening a retirement plan for your business or is looking to evaluate your plan, contact your financial professional now. Schedule Here to Discuss
Withdrawals of up to $5,000 per parent penalty-free from a retirement plan for the birth or adoption of a child
The SECURE act allows for a “qualified birth or adoption distribution” of up to $5,000 from a retirement account such as a 401(k) or IRA without penalty. The 10% early withdrawal penalty will not apply and you are allowed to repay them as a rollover contribution.
What You Can Do: Consider the accessibility of these options if you had planned to have or adopt a child and may not have ample savings. Schedule Here to Discuss
529 funds can now be used to pay student loan debt up to $10,000
Should there be leftover savings in 529 accounts after graduation and there are student loans that have not been paid off consider the ability to use this access to these funds for paying down the debt up to $10,000. 529 plans may also be used to pay for certain apprenticeship programs as well.
What You Can Do: Contact a planning professional to review your savings, cashflow and debt strategies to ensure that you are being as efficient as possible while considering these changes. Schedule Here to Discuss
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