- \ Gerard Gruber
- February 3, 2020
This past December, the US Senate approved a $1.4 billion dollar spending deal that includes the Setting Every Community Up for Retirement Enhancement (SECURE) Act, conceived to assist Americans better plan and save for retirement. The Act brings some of the most significant changes to retirement savings laws we have seen in quite some time. For some, the changes enacted will require a change in overall retirement planning strategy, while others may not be affected until farther down the road.
So how will the SECURE Act affect you?
Delayed Required Minimum Distribution (RMD): Until now, you were required to begin taking mandatory distributions from your non-Roth IRAs at age 70 ½. However, now you can wait until age 72 to begin drawing down your savings. This extension allows you to keep your money in a tax-deferred account for an additional 18 months before needing to take an RMD.
This is great news if you aren’t in need of your IRA income at age 70 ½ and prefer to allow your money to continue growing tax-deferred. However, this may impact how and when you claim social security benefits and/or your overall retirement tax planning strategy.
This rule only affects those individuals turning 70 ½ in 2020. If you turned 70 ½ in 2019, you are not eligible to wait until age 72 and must begin taking your RMDs on the original schedule.
The New Stretch Limit on Inherited IRAs: The “ stretch IRA” was an estate planning strategy that allowed non-spouse beneficiaries of non-Roth IRAs to keep assets of the IRA in an inherited account and spread the distributions out over the course of their lifetime. This “stretching” out of distributions allowed the beneficiary to spread the tax burden out over their lifetime while keeping the remainder of the inherited funds invested.
Now, however, the “stretch” allowance has been eliminated and beneficiaries must liquidate all assets in the inherited IRA within ten years. There are a few exceptions, however, for spouses, the disabled, minor children (until they turn 18), and individuals not more than ten years younger than the account holder.
Retirement Planning Changes for Small Businesses: There are several major provisions of the SECURE Act that will impact how small business owners and employees save for retirement.
Pooled Employer Plans (PEP): Pooled employer plans are a type of Multiple Employer Plan (MEP) previously only available to employers within the same field or sharing a common “characteristic.” Now, though, small employers that are not connected or affiliated can join together in the same overall 401 (k) plan. The idea behind this provision is that it will increase access to employer-sponsored retirement plans by lowering the costs of plans themselves, but the efficacy of this approach is yet to be seen. The operational complexities of coordinating multiple payrolls and having multiple employers may “zero out” any savings hoped to be gained by participating in this type of plan.
Part-Time Employee Access: Previously, small business retirement plans were not offered to employees who worked fewer than 1,000 hours in the space of a year. Now, employees who have accrued at least 500 hours for three consecutive years are eligible to participate.
The retirement planning revisions under the SECURE Act will have a greater impact on some more than others. As your wealth managers, we make it our priority to keep abreast of such changes and recommend adjustments to your retirement plan as needed.
If you do, however, have questions about how these changes might affect your plans, you are always welcome to schedule a call or come in and meet with us to discuss them.