The Secure Act
After being in the works for over three years, the Setting Every Community Up for Retirement Enhancement – better known as the Secure Act – is set to be signed by President Trump before the holidays are over. Below we have summarized the Act’s changes and what they mean for your future retirement savings.
RMDs Starting at Age 72
The Secure Act pushes the age that triggers RMDs from 70 ½ to 72, which allows your retirement funds to grow an extra 1 ½ years before you’re required to tap into them.
No Age Restrictions on IRA Contributions
There are no age-based restrictions on your contributions to your traditional IRA.
Annuity Information and Options Expanded
The Secure Act requires 401(k) plan administrators to provide annual “lifetime income disclosure statements” to plan participants to show how much money the participant could get each month if your total 401(k) account balance were used to purchase an annuity. The new retirement law also makes it easier for 401(k) plan sponsors to offer annuities and other “lifetime income” options to plan participants by taking away some of the associated legal risks.
401(k)s for Part-Time Employees
The Secure Act now guarantees 401(k) plan eligibility to for employees who have worked at least 500 hours per year for at least three (3) consecutive years. The part-timer must also be 21 years old by the end of the three-year period.
Penalty-Free Withdrawals for Birth or Adoption of Child
If you have a 401(k), IRA, or other retirement account, the new law allows you to take out up to $5,000 following the birth or adoption of a child without paying the usual 10% early-withdrawal penalty. If you are married, each spouse can withdraw $5,000 from his or her own account, penalty-free.
Auto-Enrollment 401(k) Plans Enhanced
The Secure Act pushes the 10% cap on “Qualified Automatic Contribution Arrangement” (QACA) up to 15%, except for a worker’s first year of participation.
Help for Small Businesses Offering Retirement Plans
The tax credit available for 50% of a small business’s retirement plan start-up costs is now a maximum of $5,000 (compared to only $500 before). Secondly, a brand new $500 tax credit is available for a small business’s start-up costs for new 401(k) plans and SIMPLE IRA plans that include automatic enrollment. Thirdly, the Secure Act makes it easier for small businesses to join together to provide retirement plans for their employees by allowing completely unrelated employers to participate in a multiple-employer plan and have a “pooled plan provider” administer it.
Grad Students and Care Providers Can Save More
Under the Secure Act, amounts paid to aid the pursuit of graduate or post-doctoral study or research (such as a fellowship, stipend or similar amount) are treated as compensation for purposes of making IRA contributions.
Stretch IRAs Eliminated
The Secure Act eliminates the current rules that allow non-spouse IRA beneficiaries to “stretch” required minimum distributions (RMDs) from an inherited account over their own lifetime. Instead, all funds from an inherited IRA generally must now be distributed to non-spouse beneficiaries within 10 years of the IRA owner’s death. The exceptions to the rule are if the beneficiary is a minor, disabled, chronically ill or not more than 10 years younger than the deceased IRA owner. For minors, the exception only applies until the child reaches the age of majority. At that point, the 10-year rule kicks in.
Credit Card Access to 401(k) Loans Prohibited
The Secure Act prohibits 401(k) loans provided through a credit card, debit card, or similar arrangement.
The Secure Act allows for families to take tax-free 529 plan distributions for student loan repayment. There is an aggregate lifetime limit of $10,000 in qualified student loan repayments per 529 plan beneficiary and $10,000 per each of the beneficiary’s siblings. The Secure Act also allows families to use 529 plans to pay for the same qualified elementary and secondary educational expenses that are covered by the Coverdell Education Savings Accounts, which include: tuition and fees, academic tutoring, special needs services, textbooks, supplies, and equipment, etc.
This summary is not inclusive and is simply a highlight of important topics we wanted to present to each of you. For the full article click here. If you have any additional questions or would like further clarity on the Secure Act, please feel free to contact to your advisor. We are happy to help!