The Secure Act (Setting Every Community Up for Retirement Enhancement) has been signed into law as of December 2019. The policy changes and new requirements will likely impact all American retirement savers in some way. Many of the SECURE Act’s impacts are still being reviewed and may also be subject to interpretations by the Internal Revenue Service as they are fully implemented. Below are some frequently asked questions involving the new changes and updates for retirement plans.
What is the SECURE ACT?
The SECURE Act stands for Setting Every Community Up for Retirement Enhancement act and was passed in December 2019. In summary, the SECURE Act is changing or “enhancing” current retirement plan policies in response to Americans living and working longer.
The new set of laws is designed to enhance access to and grow retirement savings options, including more access to retirement savings plans.
Key Provisions and Changes
No More Stretch IRAs.
If you (designated beneficiary) inherited a Qualified Retirement Account from someone who isn’t your spouse, Required Minimum Distributions (RMD) were required to be spent down over your life expectancy or over 5 years.
This Inherited IRA rule has been eliminated and changed to a spend-down timeline over 10 years.
This does not affect non-qualified stretch annuities.
Early Withdrawals for Birth or Adoption
Parents who have recently given birth or adopted a child can withdraw up to $5,000 from their Qualified Retirement Plan (401k, IRA, etc.) without a 10% early distribution tax penalty and can repay the plan without any time limits. This early withdrawal is known as the Qualified Birth or Adoption Distribution.
No Maximum Age for IRA Contributions
In the past, anyone age 70½ could not contribute to their traditional IRA. However, anyone can contribute to their IRA despite their age as long as they are earning compensation.
New RMD Start Dates
Required Minimum Distributions (RMD) are now required to start at age 72. Prior RMDs were to start at age 70½.
This applies to traditional IRAs, qualified plans, 403(b) plans, and 457(b) plans.
Retirees that turned 70½ before July 1, 2019, will still need to pocket their RMD this year or will be penalized 50% of the required minimum distribution amount. You have until April 1, 2020.
If your 70th birthday is July 1, 2019, or later, you will not be required to withdraw the RMD until age 72.
Annuities and the SECURE ACT
Annuity options may be offered in employer-sponsored retirement plans such as 401(k) plans, including lifetime income options to mimic pension plans of the past.
Plan sponsors will soon be required to include a new lifetime income disclosure at least annually to illustrate the amount of guaranteed monthly payments in retirement a plan participant would receive if the participant’s total benefits under the plan were converted to a stream of lifetime income.
If you inherit an annuity, contact us for viable options.
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Frequently Asked Questions
What is the Secure Act?
The Secure Act is a newly enacted law that affects retirement accounts and distributions. The act makes several changes to the rules governing retirement accounts, including increasing the age at which account holders must begin taking required minimum distributions (RMDs). The act also includes provisions that make it easier for small businesses to offer retirement plans to their employees. Finally, the act contains a number of measures designed to promote retirement security, such as encouraging the use of annuities and lifetime income options in retirement plans.