Retirement Planning and the SECURE Act

By Marianne Nolte, CRPC®

The SECURE legislation (the acronym stands for, Setting Every Community Up for Retirement Enhancement); recently signed by President Trump, is intended to improve retirement savings for many Americans.  The following are a few of the important take-aways from the SECURE Act being signed into law.  

RMD age Increase and IRA contributions past age 70.5

One of the big changes the SECURE Act brings about is the  raising the age for Required Minimum Distributions (RMDs) to begin at age 72 instead of the previous age trigger 70.5.  Often, taxpayers are miffed when they have to begin taking RMDs.  Pushing the start date back to age 72 will be a welcome break for many taxpayers as it allows for potentially another 2 years of deferred tax savings.  It is important to understand, the SECURE Act does not take affect until January 1, 2020; therefore, if you turned 70.5 in 2019, you will need to take your RMD by April 1, 2020 or face a stiff penalty of 50% (Malito, 2019).   Additionally, age 70.5 was previously a stopping point for allowing IRA contributions.  With the SECURE Act in place, individuals who have earned income (generated by wages or self-employment) may continue to contribute to their Traditional IRA until any age.  

Employer credits for establishing small business retirement plans and setting up employee auto-enrollment

In an effort to encourage Americans to save for retirement, the SECURE Act encourages small business employers to establish a small business-sponsored retirement plan, such as a 401(k), 403(b), SEP IRA or SIMPLE IRA by increasing the credit benefit already in place (Levine, Kitces, & Levine, 2019).  Employers are also provided with a separate credit for increasing potential participation via auto-enrollment.  “In general, such arrangements require plans to treat participants as though they have elected for the employer to make contributions to the plan at a specified percentage of compensation, until affirmatively notified by the participant to do otherwise” (Levine, Kitces, & Levine, 2019).

Elimination of Stretch IRAs

Some are concerned about how this the SECURE Act will impact those who inherited a non-spousal account.  The popular stretch IRA distribution strategy will no longer be allowed.  Stretch IRA’s previously allowed the non-spouse beneficiary to stretch the distribution of an inherited IRA over their own life expectancy.  However, the SECURE Act requires the entire balance of the inherited account to be distributed by the end of the 10th year after inheriting.    This could potentially increase the tax burden for someone in their 50s or 60s who most likely is in their peak earning years; however, distributions do not need to be made annually during this 10 year period so with careful planning this may not be an issue (Malito, 2019).  

SECURE Act Conclusion

The SECURE Act is expected to encourage taxpayers to build a more secure retirement for themselves by taking advantage of some beneficial new strategies, like increasing RMD age requirements and providing credits to small business owners offering retirement plans.  Elimination of the Stretch IRA and establishment of total account distribution within 10 years of inheritance may or may not pose a taxable concern.  These are only a few of the rules provided within the SECURE ACT, but with careful financial planning, they may provide taxpayers with some useful changes.  

REFERENCES

Levine, J., Kitces, T., & Levine, J. (2019, December 24). SECURE Act And Tax Extenders Creates Retirement Planning Opportunities And Challenges. Retrieved from https://www.kitces.com/blog/secure-act-2019-stretch-ira-rmd-effective-date-mep-auto-enrollment/?utm_source=Nerd’s+Eye+View+|+Kitces.com&utm_medium=email&utm_campaign=95c85a07cd-NEV_MAILCHIMP_LIST&utm_term=0_4c81298299-95c85a07cd-57359933.

Malito, A. (2019, December 25). The SECURE Act is changing retirement – here are the most important things to know. Retrieved from https://www.marketwatch.com/story/with-president-trumps-signature-the-secure-act-is-passed-here-are-the-most-important-things-to-know-2019-12-21. 

DISCLAIMER

The opinions expressed in this newsletter (article) are for general information only and are not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation. The views expressed are those of the author and may not necessarily reflect those held by PlanMember Securities Corporation. Material presented is believed to be from a reliable sources and PSEC makes no representation as to accuracy or completeness. 

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