Increase in Required Minimum Distribution Age
Increase in Age for IRA Contributions
Elimination of Stretch IRAs
The elimination of what was known as a stretch IRA may impact the financial planning of many individuals. This allowed beneficiaries of IRAs to “stretch” the RMDs throughout their lifetime. Now, those who inherit an IRA, 401(k), or other defined benefit plan, must take all distributions within ten years of inheriting the account. Certain groups are exempt from the changes including spouses, people with disabilities, and those within ten years of the age of the account holder. Those who are minors will not be affected immediately, but once the minor reaches the age of majority, he or she then has ten years to take the distributions.
The SECURE Act does not affect those who have already inherited IRAs. The changes will affect only those who inherit applicable retirement accounts from account holders who pass away after January 1, 2020. If you are an account holder, you may want to review the beneficiaries of your accounts, and potentially update your estate plan.
More Options for Part-Time Workers
Incentives to Help Small Business Owners
The SECURE Act incentivizes small business owners to start retirement accounts through a tax credit. Small businesses, defined as businesses with less than 100 employees, are eligible for up to $5,000 in tax credits. For every non-highly compensated employee who is eligible to participate in the retirement account, there is a $250 credit. Companies would be eligible for the credits over a three-year period beginning in 2020. The tax credit applies to SEP IRAs, SIMPLE IRAs, and profit-sharing plans, as well as 401(k)s.
The SECURE Act also encourages small business owners to offer retirement savings plans by making it more appealing to participate in multiple employer plans (MEPs). MEPs allow companies to offer high-quality retirement savings plans at low cost to the employer. But many employers were hesitant to join due to the “one bad apple” rule, which stated that all employers in a plan would deal with the tax consequences if one employer did not satisfy the tax qualification rules. The SECURE Act removes the “one bad apple” rule, making MEPs far more appealing to small business owners.
Those who are approaching retirement and have children in college or other higher education programs may be impacted by the SECURE Act’s changes to rules surrounding education expenses. Funds from a 529 plan can now be used to cover student loans up to $10,000 per child. The SECURE Act also allows funds from a 529 plan to be put towards some apprenticeship programs and allows those earning stipends, such as those in graduate school or working on a post-doc, to count that money as compensation for the purposes of contributing to a traditional IRA.
Contact us if you have questions about how the SECURE Act may affect your unique financial situation and plans for retirement.