By: Barry E. Haimo, Esq.
February 20, 2020
Will The Secure Act of 2019 Impact Your Retirement?
As older Americans start to plan their retirement, update their Last Will and Testament, or prepare for tax season, all eyes are on Congress. Recent and proposed changes to estate taxes and retirement planning could require you to shift your strategy. Staying informed is one of the best ways to save money.
If you’ve kept up-to-date with recent changes, you might know that the SECURE Act was passed at the end of the year. Now that it’s taken effect, will it impact your retirement? Is it time to update your will or talk to your estate planning lawyer?
Probably not. The SECURE Act is more likely to have an impact on employers who can (or have to) offer more 401(k) accounts to employers. That being said, there are some changes that could impact how you save and spend in retirement.
What Is the SECURE Act?
The Setting Every Community Up for Retirement Enhancement Act, or the SECURE Act, was created in response to the dismal state of retirement savings of many Americans. Currently, 33% of Americans have less than $5,000 in retirement savings and 45% don’t have a workplace retirement plan. Through tax credits, increased access to retirement plans, and adjustments to RMDs, Congress hopes to set more Americans up for a successful retirement.
Provisions Within the SECURE Act
The SECURE Act enacts a lot of programs and policy changes that may or may not affect your retirement, such as:
- Allowing businesses to sign part-time employees (those who work 1,000 hours in the year or have worked at least 500 hours a year for three years) up for a retirement plan
- Increasing the cap under which businesses can automatically enroll workers in “safe harbor” retirement plans (up to 15%)
- Offering a tax credit (at least $500 per year) to employers who offer retirement plans through automatic enrollment
- Pushing back the age in which you can begin withdrawing from your retirement account (from 70 ½ to 72) (Very good news)
- Removal of Stretch IRA (Very bad news)
These are some of the key takeaways from the SECURE Act. Again, if you are not an employer or you already have a retirement plan, most of these provisions won’t apply to you.
Let’s zoom in on two of the provisions that will apply to many retirees, though: the change to RMDs and the removal of the stretch IRA.
Change to RMDs
Adults who have a retirement plan must follow the rules of required minimum distributions, or RMDs. Before the SECURE Act was passed, participants had to begin withdrawing money from their retirement plans at the age of 70 ½ or risk penalties. If you turned 70 ½ during 2019, you will still have to adhere to these RMDs. If you turn 70 ½ in 2020 or after, you can now wait until 72 to withdraw funds from your retirement account.
Removal of the Stretch IRA
Before the SECURE Act, non-spouses who inherited a retirement account could stretch distributions out for the rest of their life. The SECURE Act now requires non-spouses to withdraw the full payout within 10 years of the decedent’s death.
Need to Make Some Changes?
The SECURE Act may not dramatically change your retirement plan, but the removal of the Stretch IRA may require a shift in strategy. Reach out to an estate planning lawyer for more information on how the SECURE Act affects your retirement plan.
Barry E. Haimo, Esq.
Strategic Planning With Purpose®