SECURE Act: What does it mean for investors?

SECURE stands for: Setting Every Community Up for Retirement Enhancement

The SECURE Act has come into play as of January 1, 2020. The following are key changes brought about by this Act:

IRAs and Age Limits:

1. Elimination of the age cap for contributions to Traditional IRA Accounts. As long as you are still earning an income, you can contribute to a Traditional IRA indefinitely.**

2. The age at which Required Minimum Distributions (RMDs) begin has been increased to age 72.

**This only applies to individuals who turn 70 1/2 after December 31, 2019. If an individual turned 70 1/2 in 2019, the age increase does not apply.

IRAs and Inheritance:

1. IRAs inherited after January 1, 2020: Elimination of Stretch IRA for non-spousal account inheritors. This means non-spousal inheritors must distribute the inherited IRA within 10 years of receiving the inheritance.

    a. Exceptions to this rule may include:

    • Surviving spouses
    • Minor children
    • Beneficiaries not more than 10 years younger than the deceased
    • A beneficiary who is disabled
    • a beneficiary who is chronically ill

2. IRAs inherited prior to January 1, 2020 are not affected by this update. The 10 year rule applies only to accounts inherited in 2020 and beyond.

Employer-Sponsored Retirement Plans:

1. More employers can offer Annuities within 401(k) plans.

2. The SECURE Act broadens the ability for Multiple Employer plans for small businesses. This means employers can group together under one plan, without being within the same industry, to obtain a wider range of plan options.

3. The required number of hours worked per year for long-term part-time workers to qualify for contribution to their employer-sponsored retirement plan has been adjusted. The threshold is now 1,000 hours worked for one full year or three consecutive years of at least 500 hours worked per year.

4. A Tax Credit is available for employers that automatically enroll workers into the sponsored retirement plan.

Withdrawals from IRAs and employer-sponsored retirement plans:

1. New parents can now withdraw up to $5,000 from an IRA or an employer-sponsored retirement plan to pay for birth and/or adoption expenses up to one year after the birth or adoption. Taxes must still be paid on pre-tax contributions, but an early-withdrawal penalty will not be applied.

529 Plans:

1. Assets in 529 college-savings plans may now be used to repay up to $10,000 in student loans.

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