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How the SECURE Act Affects Your Retirement Planning

What you should know about the SECURE Act changes.

What is the SECURE Act?

In late 2019, Congress passed the SECURE (Setting Every Community Up for Retirement Enhancement) Act as part of its government spending bill. The SECURE Act primarily contains updates to some of the rules and regulations surrounding retirement accounts. With most of the changes going into effect this year, there are some important things you should note that will likely directly affect you, your loved ones, and your investment strategy.

Summary of what you should know about the SECURE Act changes:
  • The required minimum distribution (RMD) age is now 72 (instead of 70½).
  • Inherited IRAs must now be distributed out within 10 years (instead of over a lifetime).
  • There is no longer a maximum age for IRA contributions (instead of 70½).
  • Part-time employees now have easier access to employer retirement plans.
The required minimum distribution (RMD) age is now 72.

Prior to the SECURE Act, individuals were required to start taking taxable distributions from their non-Roth IRAs and 401(k)s at age 70½. Now, those who are going to turn 70½ in 2020 or later don’t need to start taking required distributions until age 72.

The original RMD age was established in the early 1960s and has never been adjusted until now. By increasing the age to 72, Congress is finally recognizing that Americans’ life expectancy has increased over the past 60 years and adjusted the requirements accordingly. With this update, those turning 70½ this year will have up to two more years to allow their retirement accounts to continue to grow tax-free. This also gives those individuals up to two additional years to convert some or all of their traditional IRAs to Roth IRAs. If you anticipate you will have a year of lower than usual income before turning 72, a Roth conversion might make sense for you.

Inherited IRAs must now be distributed out within 10 years.

For IRAs inherited prior to 2020, beneficiaries could typically stretch out their required distributions over the course of their lifetime. Starting with IRAs inherited on January 1, 2020 or later, beneficiaries will need to distribute the entire inherited IRA account within 10 years of the death of the owner. The exemptions from this rule are beneficiaries who are surviving spouses of the decedent, minor children, disabled individuals and beneficiaries who are no more than 10 years younger than the decedent. Although the IRA will need to be depleted at the 10-year mark, there are no rules on the timing of the distribution(s), which gives you a bit of flexibility to determine the best timing based on your unique financial and tax planning situations.

There is no longer a maximum age for IRA contributions.

Prior to this new law, individuals were not allowed to contribute to their IRAs after they had reached age 70½. These days, Americans are living longer and many desire to continue to work beyond the traditional retirement age. The SECURE Act acknowledges this trend and allows individuals to continue to build up their retirement savings if they continue to receive an income by eliminating the maximum age for traditional IRA contributions altogether.

Part-time employees now have easier access to employer retirement plans.

The SECURE Act changes the way companies manage employee benefits and now requires all employers who offer a 401(k) plan to allow employees to become eligible to participate either after completing one full year of service (at least 1,000 hours worked in a year) or three consecutive years of part-time service (500 hours worked over the course of three years). If you are considering part-time work, this may allow you to save through an employee-sponsored plan while still enjoying the flexibility of part-time employment.

These much-needed changes to the laws surrounding retirement accounts should result in a thorough review of your current retirement and estate planning strategies. We recommend you take some time to revisit your goals regarding your retirement and the wealth transfer of your estate to ensure they are still being met with the implementation of the SECURE Act. If you have any questions, we are always available and happy to assist you in determining the best path forward for you and your financial plan.