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How The Secure Act Will Affect Retirees

When I first wrote about the Secure Act earlier this year, I referred to it as “the most significant retirement reform in more than a decade.” Today, I still believe it is. The Senate passed the legislative bill on Thursday, December 19, and President Trump signed it into law on December 20, 2019. So now it is official; the “Setting Every Community Up for Retirement Enhancement” Act has new provisions you should know about to strengthen your retirement security.

Required Minimum Distributions

Newly retired individuals will see a change in their Required Minimum Distributions (RMDs). For the first time since its inception in the 1960s, these distributions from 401(k) plans and IRAs slated for the year he or she turned 70.5 years of age is now increased to 72 years of age. For those who were depending on their distribution, it appears they will have to wait. Some retirees will need to consult with their tax professional regarding the additional income, now two tax years away, to see if any implications will be staring them in the face.

However, if you turned 70.5 years old in 2019 you will still need to take your RMD. You can wait until April 1, 2020, and then you can take another RMD by the following Dec. 31, and so on. If you don’t take your RMD in 2019, you will incur a stiff 50 percent penalty.

For those turning 70.5 in 2020, you do not take your RMD until you reach 72. You can take your withdrawal the following April 1.

Stretch IRAs Are A Thing of the Past

Those “non-spousal inheritors” of an IRA, who were allowed to take RMDs for the rest of their lives, must now withdraw all assets within 10 years. Therefore, there are no scheduled or required distributions. However, as a beneficiary, you must withdraw all of the remaining assets within the 10-year period. The concern here, as I stated in the paragraph above, is the shorter distribution time having the potential for tax implication. 

401(k) Annuities

This has been coming down the pike for a long time. The Secure Act will allow employers to offer annuities within their employee 401(k) plans. The dilemma when discussed years ago was confirming whose fiduciary responsibility it was to deem certain investment products appropriate – the employer or the insurance company. The Act has removed the fiduciary responsibility from the employer to the insurance company. This is the perfect time to have a conversation with your advisor to determine if owning 401(k) annuities is right for your situation. If you don’t have an advisor at this time, contact me at Hefren-Tillotson and I would be happy to talk with you.

Small Business Multiple Employer Plans and Incentives

One of the most attractive parts of the Secure Act directly affects small business employers in a positive way. Employers who shied away from these plans because they were not only expensive but also difficult to administer, will now have wider access to employer plans and do not have to be in the same industries to get them.

The previous language, “sharing a common characteristic,” is removed. So employer-sponsored retirement plans will be offered to those part-time workers on the job for one full year with 1,000 hours worked or three consecutive years with at least 500 hours worked.

For employers enrolling workers into retirement plans, they will receive tax credits for doing so, that is, for opening the door for those who might otherwise have not saved at all, or saved too little, to get in on auto-enrollment and on track toward a much better designed tax-advantaged savings plan. 

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