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The SECURE Act Mixes Incentives and Obligations for Retirement Savers

January 21, 2020

On Friday, December 20, 2019, the Setting Every Community Up for Retirement Enhancement (SECURE) Act was signed into law. The SECURE Act provides a mixed bag of incentives and obligations for retirement savers. Its intent is to make it easier for families to save more for retirement.

The SECURE Act Overview

The SECURE Act includes several incentives to start saving sooner, and keep saving longer.

  • Initial RMD increases to age 72 – Until now, you had to start taking Required Minimum Distribution (RMDs) out of your traditional IRA at age 70 ½. RMDs are then taxed at ordinary income rates. Now, you don’t need to begin taking RMDs until age 72. Rules for qualified charitable distributions (QCDs) and Roth IRA withdrawals remain unchanged.
  • IRA contributions for as long as you’re employed – If you work past age 70 ½, you can now continue to contribute to either a Roth or a traditional IRA.
    Expanded participation for long-term, part-time employees – Even if you’re a part-time employee, you may now be able to participate in your employer’s 401(k) plan.
  • Additional small-business incentives – The SECURE Act provides a few other tax breaks and credits to help small businesses open and operate employer-sponsored retirement plans for their employees.

Non-Spouse Stretch IRAs Mostly Go Away.

Presumably to offset the expected reduction in federal income tax collections due to increasing the RMD age to 72 the Act eliminates the use of stretch IRAs for most non-spouse beneficiaries.

With some exceptions, heirs will now be required to move assets out of inherited IRA accounts within ten years after receiving them, thus having to pay taxes on the proceeds much earlier than under the old law.

There is also concern that estate plans and trusts written to take advantage of the stretch IRA will require immediate attention.

To view our full, 4-page white paper on the SECURE Act and what it could mean for you and your retirement savings efforts please click here.