The SECURE Act became law on January 1, 2020. This legislation changes some laws related to long-term retirement savings. The SECURE Act stands with Settling Every Community Up for Retirement Enhancement Act. The SECURE Act changed several important aspects of retirement savings. Congress’s goal in passing the SECURE Act is to make it easier for Americans of all ages to plan and save for their retirements.
Contact Our SECURE Act Estate Planning Team
Taking the time to understand how the SECURE Act changes retirement planning can help you better plan for your retirement. Understanding the SECURE Act can help you rethink your estate plan and make changes that could benefit you and your family in the long run.
At Surprenant & Beneski, PC, our legal team has an in-depth knowledge of the SECURE Act. We focus our law firm exclusively on estate planning. Our board-certified elder law attorneys can help you integrate the provisions of the SECURE Act into your estate plan. Contact our Southeastern Massachusetts estate planning lawyers today to schedule your initial consultation.
What Does the SECURE Act Do?
The SECURE Act has brought about significant changes regarding retirement accounts. We have outlined a few different ways that estate planners can take advantage of these changes for your retirement plan. Specifically, the SECURE Act changed several different retirement account rules, including 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
Consider Splitting the Primary Beneficiary of Your IRA Retirement Account
Non-spouse beneficiaries of an IRA will no longer be able to stretch out distributions over their life expectancy. This change will affect people who die after January 1, 2020, and leave their IRA to a non-spouse beneficiary. Some in the estate planning community have called this change the “death of the IRA stretch.” The death of the stretch can cause significant negative tax consequences for non-spouse IRA beneficiaries.
For example, if a 40-year-old inherits an IRA worth $1 million, the beneficiary will need to distribute the whole entire IRA amount within 10 years of the year following the IRA owner’s death. The beneficiary must receive at least $100,000 per year. Before the changes, the 40-year-old could split up the income from the IRA over a 40 year period and receive only $25,000 per year. The beneficiary will have significantly more tax liability from receiving $100,000 in income than receiving $25,000 in income.
By splitting the beneficiary between the surviving spouse and a non-spouse beneficiary, the surviving spouse can transfer the IRA into her own name. Consider an IRA worth $2 million. At that point, the surviving spouse can take distributions of her $1 million share of the IRA over her expected lifetime.
The surviving non-spouse beneficiary can then begin his or her 10-year distributions of $1 million instead of the full $2 million. Eventually, when the surviving spouse passes away, the non-spouse beneficiary will have a new 10-year beneficiary period. This strategy can save the non-surviving spouse significantly when it comes to tax liability.
Continue Your Traditional IRA Contributions
Before the SECURE Act, once an individual reached age 70.5, he or she cannot contribute to a traditional IRA. However, after the SECURE Act, a person may make contributions to a traditional IRA as long as he or she still earns an income from being self-employed or from earning income. If you are able to do so, we encourage clients to continue contributing to their IRA.
Consider Taking Penalty-Free Withdrawals from Your IRA or 401(k)
The SECURE Act allows individuals to withdraw from their 401(k) or IRA tax free. The individual must be under the age of 59 ½. Before the SECURE Act, the IRS allowed penalty-free withdrawals for an expensive medical emergency or to purchase health insurance after someone lost a job. Now, individuals can withdraw $5,000 of funds after the birth of a child or the adoption of the child.
A person can repay the funds to the 401(k) or IRA with a rollover contribution. If you are considering taking advantage of this option, keep in mind, however, that you will still need to pay income tax on the withdrawn money if you do not repay it into the account.
If You’re a Part-Time Employee, Check If You Are Eligible for 401(k) Plans
Utilizing a 401(k) plan is incredibly helpful for retirement planning for individuals of every age. Check with your employer regarding a 401(k) plan. The SECURE Act has offered new incentives to small businesses to offer 401(k) plans to their employees. Also, more part-time employees are eligible for 401(k) accounts because of the SECURE Act.
Before the SECURE Act, part-time employees had to work during a 12-month period for at least 1,000 hours to be able to be eligible for a 401(k) plan. Under the SECURE Act, it is now easier for long-term, part-time employees to qualify and contribute to a 401(k) plan. Now, employees who meet the following requirements may contribute:
- The employee logged at least 500 hours in a 12 month period
- The employee logged this number of hours for at least three consecutive years
- The employee is 21 years or older
Contact Our Southeastern Massachusetts Estate Planning Lawyers Today
The SECURE Act made significant changes to withdrawing from and contributing to retirement accounts. Most Americans depend on retirement accounts for their financial security during retirement. If you own a retirement account, our experienced legal team can help you evaluate your estate plan and make any beneficial changes. Contact our Southeastern Massachusetts estate planning law firm as soon as possible to discuss your estate plan with our experienced elder law attorneys.