SECURE Act Highlights

The SECURE Act was recently passed by Congress and signed by the President.  This act’s purpose is to improve savings for Americans.  There is a lot in the act and if you want to read a rather detailed analysis of it, feel free to click this link to the Nerd’s Eye blog. In the meantime, I am going to hit some of the most common highlights.  These new rules go into place next year.

• RMDs will now begin at age 72 instead of 70 ½. As a reminder, RMD stands for Required Minimum Distributions. This is where Uncle Sam says – “I appreciate you doing all this tax-deferred saving for retirement, however, now is time you start taking a minimum distribution out every year so I can get my taxes.”  Well, at least that is how I envision the conversation goes.  Regardless, if you haven’t started your RMDs and you’re not yet 70 ½,  you can push it off another 1.5 years.

• Speaking of retirement, age 70 ½ and more, this new act will allow people to contribute to their IRAs (Individual Retirement Accounts) past age 70 ½. Right now this is not permitted.  You must have earned income to be able to do this though. This is a nice perk for people who continue to work past age 65.

• Now, here is one change I’m not that happy about.  The Stretch IRA is pretty much eliminated.  This was the concept where you could leave an IRA to someone significantly younger than you, such as a grandchild, and they could take distributions out over their lifetime. Uncle Sam has said we now want most inherited IRAs liquidated within 10 years.  I guess this is the trade-off for the reduced taxes by pushing back the RMD age to 72.

• I’m a bit torn on this one.  401k plans will now see more annuity options in them.  Now, not all annuities are not bad.  Some deferred annuities make a lot of sense for retirement planning.   However, not all annuities are equal and employers will have to be very careful with what types of annuities they permit within their plans.  Employers will have to really do their homework to make sure annuity choices aren’t too expensive and benefiting the salespeople instead of the plan participants.   I’m just waiting for the lawsuits to begin on this one.

• It will now be easier for smaller employers to group together and create multi-employer retirement plans for their employees.  This has always been an expensive issue for many small employers so it definitely helps.   Plus, there are some changes that if one of the employers in the multi-employer group is a “bad apple” the rest of the participating employers are not held responsible for the bad egg.

• The final highlight is that part-time employees will now be allowed to participate in retirement plans, assuming their employer did not permit them before. The rule is if you worked 500 hours a year for three consecutive years or 1,000 hours in a year your employer must now allow you to participate.

Again, lots more details out there such as 529 money being used for student loan repayment. If you want to go deeper over the holidays, please click the link above.  Regardless, it is good to see some positive changes to make savings easier.