December 20, 2019 marked the signing of the SECURE ACT (Setting Every Community for Retirement Enhancement). This bipartisan package of laws was designed to enhance access to and grow retirement savings options for American workers. The problem is no one got the memo!
Whether you’re a part time employee, small business owner or retiree, more than likely the SECURE Act will have some impact on you, going forward. And while the SECURE Act is new, we anticipate subsequent interpretive guidance, which may alter or adjust the manner in which the specific provisions of the SECURE Act are applied so it’s important to stay in contact with your financial professional.
Below are some quick cliff notes from the SECURE ACT:
- NEW: The ability for small business to join together to offer a cost-effective retirement plan to its workers, including a potential $5,000 tax credit.
The first priority of the SECURE Act was to enhance employees access to save for retirement. As a result, small businesses now have the ability to join together, in an effort to save costs, and offer a retirement plan to their employees, when they previously could not afford to. In addition, there is a potential $5,000 tax credit available for businesses starting a new retirement plan in 2020. Speak with your tax accountant for further details.
- NEW: More lifetime income options (like a pension) available inside 401ks and retirement plans.
In today’s world, most employees have access to a retirement plan in the form of a 401k, 403b, 457 plan, etc. When you retire, you have a lump sum of cash available to you but seldom are there options when it comes to turning your money into a pension or lifetime income vehicle. Going forward, all retirement plans will support a lifetime income option on their retirement plans and will send annual projections of what your lifetime income paycheck could be at retirement, if you elect that option.
- NEW: Qualified birth or adoption distribution from retirement plans are allowed.
Prior to the SECURE Act, taking money out of your 401k or IRA without penalty was very hard to do. Short of a large medical expense exception and a few others, your withdrawal is usually subject to a 10% penalty, prior to 59.5 years old. Today, you now have the ability to take a withdrawal out of your retirement account, without penalty, for a birth or adoption. There are limits to consider but this is a provision.
- NEW: Repeal of max age to contribute to an IRA (previously 70.5).
This is for my older employees. If you are still earning income after 70.5, you can now continue to contribute to your IRA for tax deferral.
- NEW: Triggering age to start taking Required Minimum Distributions (RMDs).
The age that you need to start taking required minimum distributions from your qualified retirement accounts has been changed from 70.5 ----72. If you are turning 70.5 after January 1, 2020, you now can delay taking RMDs until 72.
- NEW: Elimination of “stretch IRAs”:
If you inherited someone other than your spouse (ex. Grandfather) IRA, you can no longer take the necessary RMDs over your lifetime. Short of a few exceptions, the total account needs to be withdrawn in 10 years.
Those are the key provisions to be aware of. If you have any questions, feel free to reach out to us via our website.
Have a successful week!
Patrick.
Footnotes:
North American Company - Secure Act - https://www.northamericancompany.com/documents/10350312/8312582/31838Z/d92f5562-f5f2-502f-8bd5-821eaa1191eb