In late December 2019, the Setting Every Community Up For Retirement Enhancement (SECURE) Act was signed into law. It represents one of the most sweeping pieces of retirement legislation passed in over a decade.
As with any complex regulation or revision to the tax code, it’s particularly important to reach out to your personal financial advisor (and tax advisor) to find out how the changes affect your retirement planning and financial goals. With that being said, here are a few changes that could affect you:
Contributions to IRAs Are Now Allowed after Age 70 ½
Under the new regulations, you can continue contributing to your traditional IRA past the age of 70 ½. This change reflects the reality that many Americans are living and working longer, and it brings the traditional IRAs into alignment with Roth IRAs & 401(k) plans.
The Required Minimum Distributions (RMDs) Age Moved to 72
For those who haven’t hit age 70 ½ by 2019, the RMD age has been shifted to 72. Besides providing more time for your IRAs and 401(k)s to grow, this shift also allows more time for retirement planning and preparation, such as Roth IRA conversions.
Inherited IRAs (sometimes called “Stretch” IRAs) Now Have a 10-Year Deduction Deadline
The SECURE Act places a new 10-year distribution limit for IRAs and other defined contribution plans that are inherited. This new limit affects most non-spouse beneficiaries, and requires them to spend (or withdraw and adjust) the defined contribution plans rather than “stretch” the distributions over the life of the beneficiary to mitigate taxes.
Long-Term, Part-Time Employees Gain Access to Company Retirement Plans
Employers are now required to include part-time employees who work more than 1,000 hours per year, or 500 hours per year over three consecutive years, in their retirement plans. While this doesn’t include all retirement plans, this does mean that part-time employees now have greater access their company’s retirement plans.
A New Withdrawal Penalty Exemption for Birth or Adoption Expenses
The SECURE Act creates an exemption to the 10% penalty for early withdrawals from retirement plans for expenses related to the birth or adoption of a child. Families can now withdraw up to $5,000 per parent from applicable retirement accounts; while these distributions are subject to taxes, the deductions can be repaid back into the retirement account.
529 College Savings Plans Can Be Used to Help with Student Loan Repayment
Families which use 529 funds for education will now be able to use their 529 plans to help repay student loans. The 529 savings account can be used to pay up to $10,000 in student debt per student, and $10,000 for each sibling of the student. This means that any remaining funds in the 529 plans can be better used to help pay for college or qualifying apprenticeship programs.
Prior to investing in a 529 Plan, investors should consider whether the investor’s or designated beneficiary’s home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state’s qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing.
Cut through the complexity: Get the guidance you need!
There are so many things to consider: choosing the right account type or the right distribution schedule, determining your risk comfort levels and your financial needs after retirement, and then understanding the tax implications behind all of these choices. Let’s face it—retirement and taxes can be particularly complicated.
That’s why it’s important that you have trusted guidance to help you stay on track toward your financial goals for retirement. To find out more about personal retirement plans, or to discuss how The SECURE Act (2019) might affect your current retirement plans, speak with our helpful staff at Vantage Investment Services Group.
NOTE: This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
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