5 Things You Should Know About the SECURE Act

Beth Misak |

By Paul Hynes, CFP®
January 2020

The SECURE Act of 2019 passed with bi-partisan support and was signed into law by President Trump. The name of the Act comes from the long version called Setting Every Community Up for Retirement Enhancement. It contains 29 separate provisions, but here are five things that you should know about immediately.

  • You can delay your Required Minimum Distributions (RMDs) if you weren’t already 70½ in 2019. If eligible, the age for starting RMDs increases from the year you turn 70½ to the year you turn 72. That means your retirement account balances can continue to grow and you can put off taking the funds out (and paying the taxes) a bit longer.
     
  • You can continue to contribute to your IRA after age 70½. The age at which you must stop contributing to your IRA has been extended allowing for additional contributions if you continue to work past age 70½. Combined with the previous delay in RMDs, this means you can beef up your IRA balance in your later years.
     
  • You can’t stretch out distributions from inherited IRAs for more than 10 years. If you’re a non-spouse beneficiary of an inherited IRA, old rules allowed you to stretch distributions perhaps as long as over your lifetime. Now, unless you fall into one of the exceptions, you’ll have to take the entire amount within 10 years. The acceleration of distributions will be accompanied by an acceleration of income taxes. Obviously, the tax piper wants to get paid sooner rather than later.
     
  • There are new opportunities for part-time employees, debt-ridden students, and new parents. There are expanded savings choices for long-term part-time employees who were otherwise blocked from participating in a retirement plan. The Act allows penalty-free withdrawals of up to $10,000 to repay student loans. It also allows for penalty-free withdrawals of up to $5,000 to help pay for the expenses of having a new baby or adopting a child. Keep in mind that penalty-free doesn’t mean tax-free. It just means you may be able to avoid the 10% extra penalty tax for taking the money out before age 59½.
     
  • The SECURE Act will impact many people. Anyone with a retirement savings plan, such as a 401(k) or an IRA, will be affected by the new rules. That probably means that you will be affected.

As with any new legislation, it will take time for all the aspects and nuances to become clear as tax professionals await official publications from the IRS. This isn’t time to panic. But, it might be a good time to talk with us about your personal circumstances and goals. Let us help you plan with the new SECURE Act in mind so you can make more informed decisions that support your best interests.

Source: https://waysandmeans.house.gov/sites/democrats.waysandmeans.house.gov/files/documents/SECURE Act section by section.pdf