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SECURE ACT BOLSTERS RETIREMENT SAVINGS

SECURE ACT BOLSTERS RETIREMENT SAVINGS

SECURE ACT BOLSTERS RETIREMENT SAVINGS

For those who are retired now and those still working and saving for retirement, there is good news on both fronts. Two days after Christmas, President Trump signed into law the highly anticipated SECURE Act. Secure stands for Setting Every Community Up for Retirement Enhancement Act of 2019. The SECURE Act is designed to incentivize both individuals and employers to focus more on retirement savings. To find out exactly how the new law will affect you, consult your financial advisor, but here are some of the main tenets of the new law:

The SECURE Act goes into effect January 1, 2020.  The law is intended to strengthen retirement security for Americans, since it is estimated that 55 percent of U.S. citizens have not saved anything for their retirement. This is partly due to the many businesses that have not had a system to establish workplace retirement accounts. The SECURE Act is multi-faceted, but here are some of the main features:

  • Up until now, account holders such as those with a 401(k) or IRA had to withdraw required minimum distributions (RMD) in the year they turned age 70.5. The SECURE Act increases that age to 72. This could have positive tax implications for some people. The bill also eliminates the maximum age for traditional IRA contributions, which was previously capped at 70.5 years old.
  • The SECURE Act now makes it easier for employers to offer annuities as part of their 401(k) plans. While the SECURE Act was pending approval by Congress, economy experts were divided on their views about this. Some felt annuities are beneficial because they guarantee lifetime income for workers, who are living longer than ever. But others expressed skepticism because the choice of an annuity is difficult and very important. This is another reason you must consult your financial advisor before committing to an annuity.
  • The new legislation allows you to use up to $10,000 from a 529 college savings plan to repay student loans. Keep in mind this is a federal law, but states still have the right to impose additional taxes if the distribution is deemed “non-qualified.”
  • Many part-time workers may now have access to workplace retirement accounts. The new law enables businesses provide part-time employees with access to 401(k) plans or other workplace retirement plans if they’ve worked at least 1,000 hours throughout the year or 500 hours throughout three consecutive years. Small businesses are now incentivized to establish these types of accounts with up to $5,000 in tax credits each year to cover 50% of their start-up costs for retirement plans. Previously these businesses could claim only $500.  The businesses can also now claim a $500 annual tax credit for 50 percent of their startup costs in building auto-enrollment features into their 401(k) and SIMPLE IRA plans, for up to three years from the date they start the plan. Additionally, small businesses of different industries can now band together to provide a plan under the same provider. Up until now, businesses that collaborated in this way had to qualify with similar products or services.
  • Until now, if you inherited an IRA as a beneficiary you could allow the money to grow in the tax-deferred account indefinitely. This was referred to as a “Stretch IRA.” The new law eliminates the Stretch IRA by requiring recipients to withdraw the money with 10 years. This applies only to people who inherit the IRA after 2019. It is still important to contact your financial advisor, because there are some exceptions to this new rule.

There are a number of other new features of the SECURE Act. You can read the entire bill here.

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