SECURE ACT: A Retirement Act
The Setting Every Community Up for Retirement Enhancement Act passed this month. Most of the provisions will go in to effect in 2020. Here's what you may need to know.
The SECURE Act contained a lot of changes to our current retirement rules, but today I want to focus on a select few.
#1. Required Minimum Distributions (RMDs) from Traditional IRAs, 401k plans, 403b plans, 457b plans, SEPs, and SIMPLE IRAs traditionally had to be taken in April of the year following the year in which you turned 70 ½. (If you are currently employed then no RMD is required for employer plans.) Under the new SECURE Act, RMDs have been pushed to age 72. Under the new law, the required beginning date is moved to age 72from 70½, effective for individuals who reach age70½ after December 31, 2019. So good news for all of you turning 70 ½ in 2020.
#2. There are now no age restrictions on IRA contributions. Previously, you could not contribute to a Traditional IRA starting in the calendar year you reach 70 ½ years of age. (That rule does not apply to Roth IRAs.) That restriction has since been removed under the new act. So if you are 70, and still working, you may continue to contribute to a Traditional IRA.
#3. Part-time employees, who are at least 21 years old, can now participate in their company’s 401k plan. All employees that work at least 500 hours per year for at least three consecutive years can now save for retirement.
#4. The last one isn’t so pretty for those wanting to transfer money to non-spousal beneficiaries. The “stretch” IRA rule has been removed under the new act. Previously, non-spousal beneficiaries could stretch an IRA over their lifetime by taking required minimum distributions each year.
This is no longer the case. All monies inherited from a non-spouse must be distributed within 10 years of the IRA owner’s death. There are some planning opportunities here so consult with your financial advisor.
There is some good news. The old rules will still apply to beneficiaries that are minors, disabled, chronically ill or not more than 10 years younger than the decedent. The minor exception only applies until the minor becomes of age. After that, the ten year rule goes into effect.
The stretch IRA rules have also not changed for spousal beneficiaries. You can continue to defer distributions until the end of the year that the deceased IRA owner would have been 72. For example, if the deceased IRA owner passed away at age 70. The spouse can defer RMD distributions for 2 years.
There are about 25 other provisions, but I wanted to give you a head start.
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