MIKE TOWNSEND: Today we’re talking about the SECURE Act, the most significant change to retirement savings law in at least a decade. The bill was passed overwhelmingly by the House of Representatives back in May of 2019, but then it sat in limbo for months without any action in the Senate--until suddenly, it was included in the massive year-end spending bill that Congress approved right before the holidays, and now it’s the law of the land.
So here are five things you need to know about the SECURE Act and your retirement savings.
First, the age at which you have to begin taking required minimum distributions from your retirement accounts has gone from 70½ to 72. This is important, though, it only applies if you turn 70½ on January 1st, or later, of 2020. In other words, if you turned 70½ on December 15th 2019, the new law does not apply to you and you need to take your required minimum distributions under the old rules. Talk to a financial consultant about this. It can be confusing, and the penalties for failing to take a required minimum distribution at the proper time are significant.
Second, if you are age 70½ and still working, you can continue contributing to a traditional IRA. Under the old law, everyone over the age of 70½ was prohibited from contributing to a traditional IRA, even if you were still working. Now, in recognition that people are working more and more years, you can continue to save in that IRA.
Third, the new law has significant ramifications for people who inherit retirement accounts, and the change has serious implications for estate planning as well. Under the old law, if you inherited an IRA from, say, a grandparent, you could distribute the assets in that account over the course of your lifetime. Under the new law, you have to distribute those assets within ten years. Now, there are exceptions: For a spouse, for minor children, for disabled individuals, and for anyone who’s within ten years of the age of the account owner who passed away--for example, a brother who is five years younger. This is a big change. Investors who have estate plans that include leaving retirement accounts to their heirs should review those plans with a financial planner to determine whether those plans should be altered as a result of this new law.
Number four is for new parents. The SECURE Act allows new parents to withdraw up to $5,000 from a retirement plan for birth or adoption expenses without the typical penalty that comes with early withdrawals from a retirement account. It’s important to remember that this new law only waives the penalty. You would still have to pay taxes on the withdrawal. So, while it’s a new and important option for new parents, be cautious about raiding your retirement savings unless you really must.
Finally, number five is for small businesses. Under the new law, unrelated small businesses can band together to offer a retirement savings opportunity to their employees. It allows these businesses to share the cost and risk of starting and maintaining a plan. If you’re a small business owner, or if you work for a small business that doesn’t offer a 401(k)-type plan today, this is a great opportunity for employees. It’s just one of several provisions in the bill aimed at making it easier for small businesses to offer a retirement plan and get more Americans saving for retirement as soon as possible.
These are just a few of the changes in the SECURE Act. What do all of these things have in common? Well, they’re all a great reason to talk to your financial consultant or advisor. Everyone’s situation is different, so it makes sense to have a conversation with an expert who can help you make the right moves for your circumstances. Thanks for watching.