At the end of 2019, the SECURE Act made it through Congress on the coattails of the budget. The Setting Every Community Up for Retirement Enhancement Act is supposed to do just that: make retirement finances an accessible goal for more people.
The Act comes with some changes that are worth taking advantage of—and some that are worth being aware of. As this took effect January 1, 2020, be sure to discuss possible impacts to your retirement planning with your tax professional soon.
Thinking Long-Term for Retirement Finances
To reach savings goals for retirement, workers must begin saving. The SECURE Act gets retirement planning off on the right foot by increasing the cap from 10% to 15% for 401k automatic enrollment. In particular, this will benefit those working for small businesses.
Timelines for accessing retirement finances have been adjusted favorably for those approaching retirement. There has been an 18-month pushback for Required Minimum Distributions, from age 70½ to 72. This is applicable only for those turning 70½ after January 1, 2020. At age 72, retirees must begin taking RMDs, regardless.
Contributions to an IRA may continue after 70½, as well. This benefits those who work past traditional “retirement” age and would like to continue saving.
With many years ahead, planning for retirement requires more long-term tools than previously. The SECURE Act makes this possible.
For Those Just Getting Started
It can be difficult for younger people to save when it seems that there are so many immediate expenses to address. Now, the SECURE Act makes it possible for savings to be used for student loan debt and childbirth/adoption costs without early withdrawal fees.
The SECURE Act brings changes to education savings, particularly giving more uses to 529 funds. In paying off student loan debt, $10,000 may be used from a 529 account. These withdrawals are tax-free.
Taking money from retirement plans when a child is born or adopted is also now penalty-free up to $5,000 per person. So a couple could apply a total of $10,000 of savings.
Long-term, part-time workers may also be eligible for 401k plans. As the House Committee on Ways & Means notes, this is particularly useful for women who are more likely to work part-time, often due to childcare commitments.
Some Moves to Consider
The ability of your beneficiaries to easily inherit the contents of a retirement plan in the event of your passing may have been affected by the SECURE Act.
IRA inheritance windows have narrowed, starting from the date of death. Drawdowns must occur by the end of the tenth calendar year. Ways to extend this are to strategically consider who may have exclusions from this rule: disabled individuals, spouses, minor children (until the age of majority) and individuals within ten years of the account holder’s age. IRAs may also be spread out between several different heirs, reducing the tax burden over time.
Another option is life insurance, which can be directed to a trust. This, however, does not significantly reduce taxes.
The SECURE Act opens doors for people to start saving early and keep saving later. Those approaching retirement have more funding options and delays to choose from. Others just getting started can fund their retirement without being cut off from their cash when they need it.
Although it may be tempting to access funds early with these newly reduced penalties, it is important to remember that retirement is a long game, and one that is only getting longer.
To see how you may be affected by the SECURE Act, contact Stableford today by calling 480.493.2300 or contact us online.