IRA Financial’s Adam Bergman, discusses the SECURE Act and how it may impact your retirement savings, including MEP plans, the Stretch IRA and the RMD age.
What is the SECURE Act?
SECURE stands for Setting Every Community Up for Retirement Enhancement. The act, which passed through the House of Representatives on May 23, 2019, is designed to help make saving for retirement easier for everyone. The SECURE Act, or something closely resembling it, should get signed into law in the near future. There is bipartisan support that should help improve an already decent retirement system.
With more and more Americans working well past the age of 65 (and living a lot longer), more legislation is needed to help older savers prepare for a long retirement. Further, it’s important to encourage all businesses, both large and small, to offer employees the best plan they can. The SECURE Act will help in several ways.
What Changes Are Coming?
Multiple Employer Plans (MEP)
The cost of creating a 401(k) plan is a huge factor why many small businesses do not offer them. The SECURE Act will make it much easier for businesses to pool together to create an MEP. No longer do the businesses need to be in the same industry. Further, the “one bad apple” rule will no longer exist. So, if one company screws up, the other businesses would not take the fall as well. Lastly, there will be a $500 tax credit to those who open a new 401(k) or SIMPLE IRA and offer auto-enrollment.
RMD Age
Next, is the age in which you must start taking your Required Minimum Distributions, or RMDs. Currently, you must start withdrawing from traditional IRAs and 401(k) plans at age 70 1/2. That number is being bumped up to age 72. This allows older workers more time to let their next egg grow. An extra year and a half can make a huge difference as people live longer.
As of right now, age 70 1/2 is also the limit for when you can contribute to a traditional IRA. That restriction will now be gone. So long as you have earned income, you will be able to contribute to a traditional IRA. Note: Roth IRAs do not have the age restriction.
No More “Stretch” IRA
Current rules allow a non-spousal beneficiary of an IRA to “stretch” withdrawals from the plan over his or her lifetime. The SECURE act will limit that to ten years for most beneficiaries. Basically, if you’re the spouse of the decedent, you may still assume the IRA as your own. Also, if you are a minor child, the ten year limit will not apply as well. However, just about any other type of beneficiary will have to withdraw the account to $0 within ten years. No longer will you have a lifetime of benefits the Inherited IRA affords you now.
Other Benefits from the SECURE Act
- Here are a few more benefits the SECURE Act will look to bring to the American population:
- Part-time employee participation in a 401(k) plan
- Annuities can now be offered in 401(k) plans
- 401(k) statements must include a “lifetime income stream” disclosure
- More flexibility for 529 Plans
- Penalty-free childbirth and/or adoption cost withdrawals
Conclusion
The SECURE Act is the first major piece of legislation concerning retirement plans in a long while. There are many great propositions to the Act (along with a couple not so good ones). Anything that helps more Americans save for retirement is a good thing. Feel free to contact us @ 800.472.0646 and be sure to check out our other podcasts!
