What the SECURE Act Means for Retirement Savings

With all of the political headlines in the news lately, you may have missed an important one that has far-reaching implications for how you save for retirement. In late December, both political parties joined forces to pass the Setting Every Community Up for Retirement Enhancement (SECURE) Act throughout the year. To help you start the year 2020 with a clear retirement vision, I created the following list of items that will likely affect you.

Non-Spousal Beneficiaries

Under the SECURE Act, Non-Spousal beneficiaries will no longer be able to “stretch” required minimum distributions over their lifetime. This is not retroactive and won’t affect beneficiary IRAs already in existence, only those created on or after Jan. 1, 2020. This means that beneficiaries who inherit funds from an IRA are now required to fully distribute these accounts within 10 years.

However, the Act does provide a provision for certain types of beneficiaries, still allowing a “stretch” over their lifetime. The provision applies to beneficiaries who fall into one of the following categories: a surviving spouse, disabled individuals, chronically ill individuals, individuals who are not more than ten years younger than the deceased owner and the owner’s minor children (under the age of majority).

What does this mean?  It means that we recommend that you reexamine your estate plan and beneficiary designations to ensure that they support your goals. Changes may be necessary to protect your named beneficiaries from unexpected tax consequences.

A New Rule of 72

But it’s not all bad; the SECURE Act includes some nice changes to retirement accounts. While many retirement-account beneficiaries will not be as well off, the actual owners will see positive changes. For example, an individual can now wait until age 72 to start taking required minimum distributions (RMDs) from their account. Unfortunately, anyone who turned 70 ½ prior to Jan. 1, 2020 is still required to take ongoing RMDs.

The SECURE Act also repealed any age-based limitation on IRA contributions. You can now continue making IRA contributions beyond age 70 ½.  As people continue to live longer and work beyond age 65, these long-awaited changes can help investors build their retirement nest egg by adding tax-free dollars to their savings.

Getting Schooled

The bill also expands the list of what qualifies as an allowed distribution from a 529 plan you have for a future or current college student. 529-plan distributions can now be used to pay for registered apprenticeships and up to $10,000 for qualified student loan repayments. Make sure that the distribution is allowed in your state because some states don’t follow federal guidelines. An improper distribution could result in unintended tax penalties. 

Better Than “Cats”

There is much more to the SECURE Act, but I didn’t want this article to wear out its welcome like the movie “Cats.” And I hope this post gets better reviews.

If you’re a business owner who has or is interested in providing a retirement solution for your employees, you’ll want to review the SECURE Act’s additional provisions.

Expect to hear more from us in the New Year regarding these changes and more. But for now, rest assured that we are paying attention, and go back to enjoying the peace and quiet of post-holiday life.

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Meet the Author: Andrew Welp, CPA, JD is a wealth transfer advisor with Savant Capital Management.  He works closely with the Advisory Team to analyze client estate plans, develop wealth transfer and asset protection strategies and assist with trust and estate administration. Andy is knowledgeable in many financial planning areas including retirement, tax, education, risk management and investment planning.

On Jan. 8, 2020, Savant Capital Management, a nationally recognized, fee-only wealth management firm, and Huber Financial Advisors announced that they will merge during the first quarter of 2020.

 

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