Couple planning their retirement planning because of the SECURE Act.

How the SECURE Act Could Affect Your Retirement Planning

The SECURE Act became law on December 20, 2019. SECURE stands for the Settling Every Community Up for Retirement Enhancement Act of 2019. Taking some time to understand what this law does and how it might affect you could help you plan better for your retirement. The SECURE Act is a far-reaching law with many helpful retirement planning provisions. The SECURE Act aims to prevent Americans from outliving their retirement assets. 

Why Did Congress Pass the Secure Act?

If you’re retired, or you’re planning for retirement, you probably understand how expensive retirement can be. Social Security payments, while helpful, are not sufficient for retirement. Retirees today need personal savings along with Social Security payments in retirement. The U.S. Bureau of Labor Statistics reported that in 2018, only 55 percent of adults participated in a workplace retirement plan. Adults who do have a retirement plan are significantly behind on saving for retirement. The SECURE Act is an attempt to encourage employers to start offering better retirement plans and help workers save for retirement.

What Does the SECURE Act Do?

The SECURE Act updated rules related to retirement accounts with tax advantages. The Act does all of the following:

  • Allows small businesses to save 15 percent of wages automatically
  • Repeals the maximum age for contributing to an IRA
  • Raises the tax credit amounts for employers who offer new 401(k) or IRAs
  • Allows businesses to sign up more long-term, part-time workers for retirement accounts
  • Makes it easier for retirement plan sponsors to include annuities as an option
  • Pushes the required age for required minimum distributions from 70.5 to 72
  • Allows penalty-free withdrawals of $5,000 from a 401(k) for having or adopting a child
  • Allows parents to use 529 savings plans for up to $10,000 in student loan repayment

The SECURE Act and the Stretch IRA

One of the most significant effects of the SECURE Act is that it removed a provision called the Stretch IRA. The stretch IRA provision allowed people inheriting retirement accounts to stretch out the payment over their whole lifetime. Only non-spouses could benefit from the stretch IRA provision. For example, if you inherited an IRA from a friend, you could choose to stretch out payments from the IRA for the rest of your life. Now, the recipient of the inherited IRA must take a full payout within ten years of the account holder’s death. If you’re the beneficiary of an inherited IRA or 401(k) and the original account owner died before January 1, 2020, you will not be affected by the change. However, if you are planning to leave an IRA to a beneficiary, you may want to consult with an estate planning lawyer. 

How Will This Law Impact Retirement Planning?

Young families can benefit significantly from specific provisions in the SECURE Act. If a 529 plan still has money left over in it after paying for college, consider using the remaining funds to pay off student loan debt. The act also makes it possible to pay for specific apprenticeship programs using money in the 529. 

If you’re an employee at a small business, your employer might begin offering a retirement plan for employees. Ask your employer or HR department if they are offering any new or enhanced retirement plans. You might even want to mention the incentives offered to business owners by the SECURE Act. Part-time employees that haven’t been eligible to participate in a 401(k) may be eligible to enroll. 

Finally, if you’re planning on taking a required minimum distribution and you’re turning 70 ½ in 2020, a change in plans might be your best option. If you have questions about how the SECURE Act might impact your retirement planning, contact the experienced retirement planning lawyers at Surprenant & Beneski, PC.