How does the SECURE Act affect your retirement plans? Alan Clopine, CPA of Pure Financial Advisors explains some of the key changes to retirement savings effective January 1, 2020, including required minimum distributions (RMD), IRA contributions, annuities, and changes to the stretch IRA provision.
Hot off the press, the SECURE Act: Setting Every Community Up for Retirement Enhancement just passed. Most of the provisions will be effective in 2020 so what the heck are they? Because it’s the biggest retirement act we’ve had in the last decade.
The first provision is small businesses can band together under multi-employer plans for creation of their 401(k)s which means that they’ll be less cost and more likely more firms will be able to offer them, which is great.
Number two is required minimum distributions, RMDs, right now at age 70 and a half you have to take money out of your IRA or your 401(k) whether you want to or not. That will be pushed back to age 72.
There’s going to be no age restrictions on IRA contributions. So going forward anyone that has earned income at any age can do an IRA contribution.
401(k)s will be available for part-time employees. If you work for an employer for 500 hours a year, at least 500 hours for three consecutive years, starting in 2021, you will qualify to be in that plan.
Annuity options will be available in the plans, which the insurance companies lobbied for and they’re quite excited about – but just be aware that they are now going to be available.
And probably one of the biggest things is the stretch IRA is going away, effectively. So a stretch IRA is if you were to inherit an IRA from anyone other than your spouse, you can stretch those distributions out over your lifetime. Well that’s now going to change to ten years, effective for folks dying in 2020 and later. If you inherit it obviously at that point as well. So what this means is that within a 10 year period you’re gonna have to pull all those funds out. You can do it evenly over 10 years, you can wait till year 10 and pull it all out, but by the end of 10 years you have to get all the money out.
There are some exceptions to be aware of. First of all, this doesn’t apply if you inherit your spouse’s IRA. There’s really no changes there. There’s actually a whole bunch of other rules which I won’t get into here. But spouses, this doesn’t apply to you.
But some other people that will still be able to stretch their IRA over their lifetime is if you’re a minor, under age 18. If you’re disabled or chronically ill you’ll still be able to stretch the IRA, and probably the most important one is, if you’re close in age to the person that is deceased. In other words, if you’re no more than 10 years younger than the IRA owner, you can still stretch it over your lifetime. But virtually for everyone else, they’ve got to pull out the dollars within 10 years. This will make a pretty big difference for a lot of folks that have big IRAs. And let’s say they have just one or two beneficiaries with a large IRA, meaning that that money is going to have to come out within 10 years instead of over the recipient’s lifetime. So you may want to start looking into Roth conversions and things like that to lessen the tax burden for your beneficiaries.
Anyway. Those are the main provisions. There’s probably about 25 other ones, but those are the main ones I wanted to give you a head start on so you know what is coming in 2020 and beyond.
If you’d like more information we have a guide on our website at PureFinancial.com.