A Shift in Your Retirement Plan
Congress recently approved a new retirement savings law that is sure to have a lasting impact on individual retirement plans. The new law is a result of the overall dissatisfaction regarding the strict guidelines that previously controlled retirement savings accessibility. The retirement provisions include a variety of changes that will affect the course of peoples traditionally regulated retirement accounts.
The savings bill known as the SECURE act was approved as a part of the government spending bill. The acronym SECURE stands for ‘setting every community up for retirement enhancement’. Stuck in limbo for several months, the bill was prioritized in 2019’s end of year, must pass files.
This act is not limited to individuals approaching or in retirement; it will have a trickle down effect that will impact new parents, small business owners and their employees, and estate plans.
Alterations include increasing the age in which individuals must begin taking required minimum distributions, RMDs, from their savings account from 72 to 70.5. Small business owners are able to present employees with more savings opportunities by presenting their workforce with 401(k) plans. Part time workers have access to retirement plans. Rules monitoring inherited retirement plans will change and potentially affect estate plans.
The RMD age change does not apply to individuals who turned 70.5 in 2019. The new law only applies to individuals who will turn 70.5 after the initiation date, December 29, 2019. The law has put an end to the prohibition regarding individual retirement account, IRA, contributions after age 70.5. So long as an individual has earned income, they can continue to contribute to the savings account.
Inherited retirement accounts no longer can distribute assets over the course of the beneficiaries lifetime. Now, assets have a ten year grace period in which they must be distributed. This provision is likely to be met with estate planning revisions. It will only impact accounts inherited in 2020 and beyond.
Parents are able to withdraw up to $5,000, penalty free, from an IRA account to pay for adoption expenses or birth expenses. This ability is accessible through the first year of the child’s birth and/or adoption. Other than taxes, penalties will not apply.
The bill has designed a favorable framework for small businesses by establishing low barriers. Small business owners are able to offer their employees access to retirement plans. Additionally, there is a provision that allows for unrelated small businesses to work together and offer a multiple employer offer/package to employees. Part time workers are now able to participate in 401(K) plans, too; however, in order to be eligible, an employee must have worked 500 hours a year for the past three years, consecutively.
The Department of Labor must introduce new rules regarding lifetime income disclosure that will serve as a progress report to keep individuals on track with their savings. Its likely the implementation for the provision will take place in 2021 or 2022 before it becomes the new standard.
It's important for individuals to stay up to date on the changing laws that directly impact retirement savings for the foreseeable future. The evolving government can change the course of retirement plans at any time. Seeking consultation can be beneficial to ensure both comfortability and security in your personalized plan.