During the final weeks of 2019, Congress was busy passing the sweeping retirement reform bill known as the Secure Act. Exactly what we all wanted in our stockings! As with any legislative reform, there are typically winners and losers. Whichever category you fall under, the provisions of the Secure Act will likely impact your retirement planning. On a side note, SECURE is an acronym for Setting Every Community Up for Retirement Enhancement. Who knew Congress could be so clever?
Here are the 6 most noteworthy provisions:
Say “sayonara” to age restrictions on traditional IRA contributions
Prior to the new, under previous legislation, individuals were no longer able to make contributions after age 70 1/2. Individuals can now contribute to any age as long as they have earned income.
Penalty free withdrawals for childbirth or adoption
New parents can now take penalty free withdrawals of up to $5,000 for qualified expenses associated with childbirth and/or adoption.
529 Plan student loan paydown
529 plans were previously designated to pay higher education expenses only. Moving forward, parents can take up to $10,000 per child in tax free money from a 529 Plan and use it to pay down their student loan debt. The student loan interest paid for with those funds cannot be deducted for tax purposes but, given the choice between the two, debt paydown is the way to go.
Part-Timer’s Eligible for 401K Plans
Part time workers have long been denied enrollment to company 401k plans. Under the new law, employers are now required to offer any employee who worked more than 1,000 in one year or 500 hours over 3 consecutive years an option to enroll.
Time Limit on Inherited IRA Withdrawals
Under prior law, the beneficiaries of inherited IRA’s were able to spread out withdrawals over their expected lifetime. The new law requires beneficiaries to withdraw all funds within 10 years of inheritance. This rule is waived for beneficiaries who are surviving spouses, minor children, disabled or chronically ill, and less than 10 years younger than the decedent.
The Secure Act makes it easier for small businesses to share in the administrative costs of retirement plans and participate in multiple employer plans (MEPs). As a bonus, a start-up retirement plan credit up to $5,000 is also potentially available to small businesses who do so. Stay tuned for a more in-depth look at these provisions.
As is the case with any legislation, there will likely be continuing updates on the applications of this law. In the meantime, it is wise to review your personal and business plans with your financial success team (i.e. financial advisor, tax professional, attorney etc.) As always, we are happy to recommend qualified professionals.