On December 20, 2019 a bill called ‘Setting Every Community Up for Retirement Enhancement (SECURE) Act’ was signed into law by President Donald Trump.
The Secure Act does many things, but here is a list of the biggest changes:
- More time in IRAs and 401(k)s. The bill raises the age for required RMDs. This means your account grows taxed deferred for a longer period of time. Instead of having to take your RMD at 70 ½ years of age, you now must begin at age 72. If you do not need your RMD to supplement your income, this additional time could be a real benefit for you. Keep in mind, though, that waiting till age 72 means that your RMD will probably be bigger than at age 70 ½.
- No more stretch IRA’s for non-spouse beneficiaries. Under the new Act non-spouse beneficiaries of your IRAs and retirement plans must liquidate the account by the end of the 10th year. Prior to the new act your beneficiary could do what is called a Stretch IRA. This meant they had to take withdraws, but they could do this over their life expectancy. Now it must be completed in 10 years. Under the old law your retirement plan could potentially go on for decades. Why did this change? This is going to raise a lot of tax revenue. Now may be the time to investigate life insurance as it could be a more tax-efficient asset to pass to beneficiaries since the long-term stretch IRA is eliminated for most non-spouse beneficiaries.
- Grant older workers benefits. If you’re working, you can still contribute to your IRA after age 70 1/2. Previously, you could not. Many people are working later in life because they must save more to retire. This may give some a planning opportunity that wasn’t open to them before.
- Boost small business 401(k)s. Small businesses can now band together in group plans. This will expand access to multiemployer plans, or MEPs, to pool resources and share the costs of a retirement plan for employees. This means that small businesses can now join a group plan. An employer can cut administration and management costs; which may have previously deterred the business from offering a plan. By joining a plan with multiple businesses, it could also make it possible for small businesses to get a much better plan than they could achieve on their own.
- Annuity adoptions. The new law now allows 401k plans to add annuities as an option. The reason is pretty straight forward: annuities can provide lifetime income. You could take all or part of what you saved and invest that money with an insurance company. The company would then give you an income for the rest of your life. However, there are some things to consider. If you convert money to a lifetime income, there probably will be fees or costs. You should check into the strength of the insurance company. You will want an insurance company with strong ratings.
These are just a few of the changes in the new law. Please take time to read through the whole bill for more information and, as always, if you have questions please give us a call. We would love to sit down with you to see how the changes will affect you personally.