SECURE ACT and Preparing for 2020

Like a frantic holiday shopper, Congress waited until the last minute to get something done. In this case, the something was a present (of sorts), called the SECURE Act (the Act).

SECURE is a somewhat contrived acronym for the Setting Every Community Up for Retirement Security Act. The Act, which was attached to an appropriations bill designed to avoid another government shutdown, was signed in late December.

For those of us who serve you, it’s made the holiday season even busier than normal, since there are components that may affect your financial plan. Since everyone has enough on their plates (pun intended) at this time of year, we’ll just give you the highlights.

First, beginning in 2020, the Act increases the age requirement for investors to start taking minimum distributions (RMDs) from their IRAs from 70 ½ to 72. The change takes effect in 2020. If you are already taking RMDs, or turned 70 ½ in 2019, this change does not affect you.

Second, also starting in 2020, investors over 70 ½ who have earned income will be able to make contributions to their traditional IRAs. Unfortunately, if you are over 70 ½, you cannot make a similar contribution for 2019.

Unfortunately, Congress decided to pay for the aforementioned benefits by changing the rules for so-called “stretch IRAs”, which allowed non-spouses who inherited an IRA to stretch disbursements over their lifetimes. The new limit for (most) non-spouses will be 10 years, beginning for heirs of account holders who die starting in 2020. If you are already inherited a IRA before 2020, this change does not affect you.

The Act also provides flexibility to use 529 accounts for qualified student loan repayments of up to $10,000 per year; and permits penalty-free withdrawals of up to $5,000 from 401(k) accounts to cover birth or adoption expenses.

For those of you who own businesses, the Act represents the broadest changes to retirement plan rules since the Pension Protection Act of 2006. It makes it easier and less expensive for small employers to offer retirement plans, increases eligibility opportunities for part-time employees, offers a tax credit for adding an auto-enrollment feature, and makes it easier for employers to offer lifetime income products.

Thinking about retirement planning at this time of year is about as enticing as returning holiday gifts, which is why you have us. There are pieces of the Act that may improve your ability to save, but other pieces, especially the limits on stretch IRAs, that may make revisiting your financial planning and estate documents worthwhile. As always, we welcome the opportunity to answer any questions you may have about the Act and its impact on your financial plan at your convenience.

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