SECURE Act Changes Options for Retirement Savings and Planning

The Setting Every Community Up For Retirement Enhancement Act (“SECURE Act”), which became effective January 1, 2020, has changed the landscape for retirement savings and planning.

The SECURE Act permit employers to join together with other businesses in multiple employer plans to offer retirement plans to their employees. This change should help increase access to retirement plans to employees of small businesses.  in addition, it offers tax credits to small businesses who establish retirement plans for their employees, and provides for an additional tax credit for businesses that set up auto-enrollment in such plans. Studies show that auto-enrollment is effective at getting people to save more for their retirements. In addition, the law raises the cap on auto-enrollment contributions from 10 to 15 percent of an employee’s pay. The SECURE Act also permits the participation in 401(k) plans of long-term part-time workers, instead of just full-time workers.

Annuities are an investment product that provide a retiree with a guaranteed income over the course of a lifetime, and can provide retirees with a much-needed steady income stream.  The SECURE Act puts the burden on insurance companies that sell annuities, not employers, to offer proper investment choices for an employers’ workers. This change makes it more attractive for employers to offer annuities as investment options to their employees.

In addition, the SECURE Act allows an individual to withdraw without penalty up to $5,000 from a 401(k) or IRA upon the birth or adoption of a child. Previously, such withdrawals were subject to a 10% early withdrawal penalty. The law also permits the use of funds in 529 college savings accounts to pay for apprentice programs, and to pay up to $10,000 of student debt during the course of a student’s lifetime.

Most important for guardianship practitioners, the SECURE Act has eliminated a well-used strategy for stretching out monies in Individual Retirement Accounts (IRAs). Previously, individuals who did not need IRA monies during their lifetime could create an income stream for their younger family members. By listing their children or grandchildren as beneficiaries of an IRA, individuals who inherited an IRA could “stretch out” the withdrawals from the IRAs during their lifetimes. The SECURE Act now requires that beneficiaries of an IRA, other than a spouse or disabled person, withdraw all of the funds from an IRA within ten years of the death of the owner of the IRA. This change also may increase the potential tax implications for non-spousal beneficiaries of such accounts.

Finally, the SECURE Act has increased the age – from 70.5 to 72 – by which owners of retirement accounts, such as IRAs and 401(k)s, are required to start withdrawing “required minimum distributions,” or RMDs, from their accounts.  Individuals who turned 70.5 in 2019 are still required to withdraw RMDs by April 2020.  To better understand the impact of this change on RMDs, you can use this calculator:  In addition, the SECURE Act permits individuals who are still working to make IRA contributions beyond age 70.5.

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