It is a well-accepted fact that Americans have continued to fall short when it comes to saving enough for retirement.¹ Whether this failure is due to a lack of financial education, poor planning, or fundamental flaws to the American retirement system, has been widely debated. Yet for many individuals, thinking about financial insecurity can cause a terrible feeling. In an effort to help, the government recently passed a spending bill which included legislation aimed at addressing worries about retirement readiness.
The SECURE Act, or the “Setting Every Community Up for Retirement Enhancement” Act, was signed into law on December 30th, 2019, bringing forth reforms meant to improve retirement security. This reform comes at a time when the reality for many Americans is shifting. As Americans live and work longer, their retirement planning must evolve accordingly. Currently, many employees who are looking for ways to save may not have access to employer retirement plans, which highlights the importance of the recently passed legislation, which was put forth to help ensure a healthier retirement outlook.
It’s always important to keep abreast of legislative changes and work with your financial professional so you can make the right decisions no matter where you are in your journey. Whether you’re near retirement age wondering about contribution and withdrawal requirements, a small business looking to create a retirement plan for your employees, a long-term part-time worker hoping for access to employer-sponsored retirement plans, are looking for ways to cover student loan debts, or even are a soon-to-be parent, there are provisions in SECURE that may impact you. Below, we’ve highlighted some of the most important provisions so you can stay in the know.
Key SECURE Act Highlights
Contribution Age Cap Lifted: The IRA contribution age cap has been removed with SECURE. Previously,
70½ was the contribution age limit but many Americans are working longer and
may have a financial need to keep saving.
- It’s important to consider your retirement readiness including how long you expect to work and when you are going to tap into your retirement savings. This provision will apply for the 2020 tax year.
- Delayed Required Minimum Distributions (RMDs) from retirement plans: Everyone knows 72 is the new 70½. Previously, RMDs were required to be taken from retirement accounts at age 70– this requirement has been pushed to 72, allowing a couple years of extra tax-deferred savings growth.
- Unfortunately, this new rule is not effective until 2020, so if you are already taking RMDs or had turned 70½ prior to 1/1/2020, you would still be covered under the old rules and would be required to start taking RMDs.
- Work with your financial professional to ensure you understand your options for withdrawals, especially if you are 70½ or are turning 70½ in 2020.
- Annuities & 401(k) plans: SECURE contains provisions for increased offering of annuities as investment vehicles within employer-sponsored plans. Annuities may be a valuable alternative savings vehicle as they can offer guaranteed² income for retirees, potentially helping bridge any retirement income gap.
- Do you know your retirement income gap? You always want to be sure to mind the gap. Work with your financial professional to determine whether an annuity may be a good fit for you to help you replace your income stream in retirement.
- No More Lifetime Stretch – Limitations on inherited IRA & 401(k) accounts: Previously, beneficiaries who did not inherit from a spouse were permitted to “stretch” the required minimum distributions across their lifespan, easing potential tax implications. For non-spousal beneficiaries under SECURE, inherited account assets must now be withdrawn within 10 years of the original account holder’s passing– you’ll want to make sure to plan accordingly.
- Keep in mind, stretch rules can still to apply to transfers to Spouses, Disabled or Chronically Ill Beneficiaries, or a beneficiary who is no more than 10 years younger than the deceased account owner.
- It’s important to work with your financial professional to determine implications on estate planning or to understand how an inherited account may impact both your tax burden and the tax consequences to your beneficiaries.
- Long-Term Part-Time Workers & 401(k) Eligibility: Before SECURE, you’d have to work more than 1000 hours yearly to be eligible for defined-contribution plans such as a 401(k). Now, employers are generally required to offer access to employees who have worked 500+ hours for more than three years.
- This is great news for part time workers — be sure to ask your company about upcoming changes if you think you may be eligible
Other Helpful Provisions:
- Business Owners – Access Improved for Multiple Employer Plans (MEPs): Under SECURE, completely unrelated companies can now band together to create a MEP such as a 401(k), leading to greater ease and efficiency of offering plans to their employees. Previously, employers had to have an organizational relationship to take part in the same MEP.
- College Debt Payment Opportunities: Student loan debts have been a hot topic recently, and for good reason as debt continues to rise. A SECURE provision allows up to a $10,000 lifetime withdrawal from a 529 account to be used to pay down student loans.
- Soon-To-Be Parents: Penalty Free Withdrawals. Having or adopting a child? Within a year of birth or adoption, you’ll now be able to make a penalty-free withdrawal of up to $5000 from your retirement account.
¹ The State of American Retirement Savings, Economic Policy Institute, by Monique Morrissey, December 10, 2019. https://www.epi.org/publication/the-state-of-american-retirement-savings/
² The guarantees of annuities are dependent on the claims paying ability of the issuing company.
For questions and more information related to the S.E.C.U.R.E Act please contact Bryan Pritchard (BPritchard@nationallife.com), Tracey Ullom (TUllom@nationallife.com) or visit the Advanced Markets homepage.