The SECURE Act, or (S)etting (E)very (C)ommunity (U)p for (R)etirement (E)nhancement, proposed to tackle the dismal retirement participation rate was signed by the President on December 20th. So, what does this mean for you and the rest of Americans?
- Elimination of the ‘Stretch’ Provisions (In short, inherited retirement accounts must be distributed in full by the end of the 10th year following the year of inheritance.) **Although there are exceptions
- Easier for small businesses to set up a retirement plan (Businesses to get tax credit for establishing a retirement plan)
- Required Minimum Distribution (RMD) age pushed back from 70.5 to 72
- 529 Plan funds can be used to pay back qualified student loans (up to $10k annually)
- 10% early distribution penalty waived for a qualified birth or child adoption up to $5k per-child (If married, both spouses can withdraw up to $5k per-child)
- Traditional IRAs no longer have a contribution age limit (Use to be at age 70.5)
- Annuities to enter into employer retirement plans (Is this a good thing? Click for more insight)
- Part-time employee 401(k) participation available
- Increased max contribution percentages for employees who are automatically enrolled into a 401(k) plan (was 10% cap, but increased to 15%)
- Kiddie-Tax TCJA revisions reversed (back to the child’s parents’ marginal tax rate)
- Disaster relief distributions up to $100k
- For students – stipend and fellowship payments are treated as compensation for IRA purposes (enables students to make IRA contributions)
- No more 401(k) credit card loans
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Final thoughts:
After surveying thoughts across the financial industry, there are still mixed feelings on the SECURE Act. Many are asking the question; does it really promote security for Americans, or does it just increase exposure to salesmen? I think both, but of course with every new law comes pros and cons. In my opinion, it is the plan participator that must educate themselves on what they are putting their hard-earned money in. With the new landscape set, I’d encourage everyone to read up on your retirement plan and dig into the investments (specifically focusing on the expense portion). For the full implications of the SECURE Act, we will have to wait and see.
