On January 15, 2020

Money Matters: The new SECURE act

by Kevin Theissen

The Setting Every Community Up for Retirement Enhancement (SECURE) Act is now law. With it, comes some of the biggest changes to retirement savings law in recent years. While the new rules don’t appear to amount to a massive upheaval, the SECURE Act will require a change in strategy for many Americans. For others, it may reveal new opportunities.

Limits on Stretch IRAs have changed. The legislation “modifies” the required minimum distribution rules in regard to defined contribution plans and Individual Retirement Account (IRA) balances upon the death of the account owner. Under the new rules, distributions to non-spouse beneficiaries are generally required to be distributed by the end of the 10th calendar year following the year of the account owner’s death.

It’s important to highlight that the new rule does not require the non-spouse beneficiary to take withdrawals during the 10-year period. But all the money must be withdrawn by the end of the 10th calendar year following the inheritance.

A surviving spouse of the IRA owner, disabled or chronically ill individuals, individuals who are not more than 10 years younger than the IRA owner, and child of the IRA owner who has not reached the age of majority may have other minimum distribution requirements.

Let’s say that a person has a hypothetical $1 million IRA. Under the new law, your non-spouse beneficiary may want to consider taking at least $100,000 a year for 10 years regardless of their age. For example, say you are leaving your IRA to a 50-year-old child. They must take all the money from the IRA by the time they reach age 61. Prior to the rule change, a 50-year-old child could “stretch” the money over their expected lifetime, or roughly 30 more years.

Another major change is the removal of the age limit for traditional IRA contributions. Before the SECURE Act, you were required to stop making contributions at age 70½. Now, you can continue to make contributions as long as you meet the earned-income requirement.

Also, as part of the Act, you are mandated to begin taking required minimum distributions (RMDs) from a traditional IRA at age 72, an increase from the prior 70½. Allowing money to remain in a tax-deferred account for an additional 18 months (before needing to take an RMD) may alter some previous projections of your retirement income.

The SECURE Act’s rule change for RMDs only affects Americans turning 70½ in 2020. For these taxpayers, RMDs will become mandatory at age 72. If you meet this criterion, your first RMD won’t be necessary until April 1 of the year after you reach 72.

In terms of wide-ranging potential, the SECURE Act may offer its biggest change in the realm of multi-employer retirement plans. Previously, multiple employer plans were only open to employers within the same field or sharing some other “common characteristics.” Now, small businesses have the opportunity to buy into larger plans alongside other small businesses, without the prior limitations. This opens small businesses to a much wider field of options.

Another big change for small business employer plans comes for part-time employees. Before the SECURE Act, these retirement plans were not offered to employees who worked fewer than 1,000 hours in a year. Now, the door is open for them or to those who have worked at least 500 hours per year for three consecutive years.

Kevin Theissen is the owner of HWC Financial in Ludlow.

Do you want to submit feedback to the editor?

Send Us An Email!

Related Posts

Keeping winter coats clean

December 4, 2024
Standing on the berm of a small pond, I watch the resident beaver leave its lodge, a silhouetted nose moving through the water. It disappears briefly and returns with a branch in tow. The beaver clambers over the edge of its dam along a muddy path, a branch bouncing along behind. Despite the muddy trail,…

Celebrating the final month of the year

December 4, 2024
“December is a month of enormous potential. It’s a time we can all give and receive. A time when the spirit of humanity shines the brightest,” said Michael Josephson. Thanksgiving weekend 2024 was one we will not forget. At least 18  inches of snow, along with the excitement of World Cup will create stories for…

Every turn, a trip down memory lane

December 4, 2024
We floated along Upper Royal Flush, enjoying the fresh, all-natural snow beneath our feet. It feels so good, this marvelous gift of nature. Soft, rotary turns as we kept our skis flat on the snow. Using lateral ankle flexion, we can adjust our edge angle to the terrain, letting our bases float over the snow.…

The light of my life

December 4, 2024
I have a friend who lives just outside of a major city in the South. He’s done well for himself; he drives a nice car, has a lovely wife and kids, has carved out a successful career in the insurance world, and lives in a beautiful home. Recently, we had a conversation about getting older…