How The SECURE Act May Effect Your Retirement Plan

The SECURE ACT - Setting Every Community Up for Retirement Enhancement Act

Went in to effect on January 1st, and while there are a number of things that the SECURE ACT does in reshaping how retirement planning will take place for almost all Americans, here are three important changes that you should be aware of if you are planning to retire in 5 to 10 years or less:

 The age in which you need to take required minimum distributions is changing (and so is the maximum age for traditional IRA contributions)

Previously, qualified account holders such as those with a 401(k) or IRA had to withdraw required minimum distributions (RMD) in the year they turned age 70.5. That number has now increased to age 72 (as long as you didn't turn 70.5 in 2019). 

This bill ALSO eliminates the maximum age for traditional IRA contributions, which also used to be 70.5 years old. (As long as you are employed)

But be aware: Americans who turned 70.5 years old in 2019 will still need to withdraw their required minimum distributions this year. So, if your birthday is BEFORE July 1st, 1949, you will STILL NEED TO TAKE AN RMD!

The elimination (with a few exceptions) of stretch IRAs and what that means if you inherit some money

Under the old law, beneficiaries who did not inherit their accounts from a husband and wife are in some cases allowed to withdraw required minimum distributions for the span of their lives, which could be a few years, or a few decades. The amount of the distribution is calculated based on a few factors, including life expectancy and beneficiary age.

The SECURE Act requires beneficiaries withdraw all assets of an inherited account within 10 years. There are no required minimum distributions within those 10 years, but the entire balance must be distributed after the 10th year. This change can be problematic for some, especially if you are in your 40s and 50s and at the peak of your earning years. You could potentially have an increasing tax implications because of the need to take this money within a certain time frame.

Guaranteed Lifetime Income Options From Retirement Plans

The SECURE Act will also encourage employers that offer retirement savings plans to let employees convert their savings into guaranteed lifetime income, through annuities. Pros/Cons? Employers will be protected from being sued if the insurer they choose to make annuity payments doesn’t pay claims in the future, but if an employee knows what their monthly budget is and that the guaranteed income amount will cover those expenses, they may benefit from this offer as opposed to managing their own portfolio in retirement.

Want to read more about the SECURE Act? Click here for more information on the SECURE Act