In the final weeks of 2019, this bill passed through Congress. It was signed into law by President Trump on December 20 and became effective on January 1.
Here’s a quick summary of the changes the SECURE Act brings:
1. Insurance companies—not employers—now have fiduciary responsibility over the investment options offered through annuities within 401(k) plans. Prior to the SECURE Act, employers were responsible for ensuring suitable investments in annuities.
2. The age at which IRA and 401(k) account owners must take a required minimum distribution (RMD) has been increased from 70 ½ to 72. If you turned 70 ½ in 2019, you’ll still need to take an RMD by April 1, 2020, followed by one no later than December 31, 2020 and then by December 31 of each subsequent year. However, if you turn 70 ½ this year, you don’t need to take your first RMD until April 1 of the year after the year in which you turn 72.
3. The age limit for making contributions to traditional IRAs has been eliminated. Previously, no one over the age of 70 ½ was able to save money in this type of account.
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4. The so-called “stretch IRA” is no longer. Most beneficiaries of IRAs must now withdraw 100% of those assets within 10 years of inheriting the account. This presents a challenge to any IRA that names a trust as a beneficiary, because the new 10-year payout rule will still apply. However, there are still certain beneficiaries who may “stretch” the payout of their inherited IRA:
- Minor children, but not grandchildren
- Disabled and chronically ill individuals
- Those who are not more than 10 years younger than the IRA owner
5. Part-time workers may now enter into company-sponsored retirement plans. Previously, employers could exclude employees who worked less than 1,000 hours per year. Now, workers may be eligible to participate if they worked 1,000 hours within one year or 500 hours within three consecutive years.
6. Small businesses can now access multiple employer plans regardless of industry. This is expected to help smaller companies and their employees enjoy features that only large companies previously had in their retirement plans.
Wondering exactly how the SECURE Act will affect your retirement, estate or tax plan? Talk to one of our experienced financial planners and find out! Click here to set up a no-cost, no-obligation appointment.