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Secure Act

The Secure Act of 2019 - How it Impacts You Today.
by Nathan Wyatt
Nathan Wyatt, Investment Advisor
The SECURE Act is designed to encourage more businesses to offer a retirement plan to their employees and encourage employees to save more for retirement.  Although many of the provisions are geared toward retirement, the implications go beyond this.  Below are 6 provisions our team wants you to know about the SECURE Act.

  1. It allows 529 plans to be used to repay student loan debt. 
    The SECURE Act allows families to take tax-free 529 plan distributions for student loan repayment.  The law includes an aggregate lifetime limit of $10,000 in qualified student loan repayments per 529 beneficiary.  Many families use a combination of income, savings, and student loans to pay for college.  Since there are no time limits imposed on 529 plans, a student can keep contributing to a 529 plan throughout college or after graduation and use any leftover funds to repay student loans tax-free.  This also presents an opportunity for grandparents who want to help pay for college without affecting financial aid eligibility.  

  2. Eliminates inherited "Stretch" IRAs
    The Act requires beneficiaries to completely withdraw inherited IRAs and retirement plans within 10 years and pay the resulting tax liability (previously beneficiaries could opt to take only a required minimum distribution over their life expectancy).  The 10-year rule does not apply to some beneficiaries, such as surviving spouses, disabled individuals, minors, and those who are not more than 10 years younger than the account owner.  If you have an IRA that you planned to leave to beneficiaries based on prior rules, consider working with our team, as well as an attorney, as this change may require you to reevaluate your retirement and estate planning strategies.

  3. Removes age limits for contribution to traditional IRAs.
    The legislation recognizes that more Americans are living longer and working past normal retirement age.  Therefore, it permits those over age 70 1/2 with earned income to contribute to a traditional IRA.  Any individual who still has earned income in the year 2020 and beyond may contribute to a traditional IRA, even if they have not contributed to an IRA in the past.

  4. Delays the start of Required Minimum Distributions (RMDs)
    RMDs, are minimum amounts you must withdraw annually from your traditional IRA, 401K, 403(b) or other retirement savings plan once you have reached the mandatory age for making withdrawals.  The Act increases the mandatory age at which individuals must begin taking RMDs from 70 1/2 to 72.

  5. Allows qualified distributions from retirement plans for birth or adoption.
    Upon the birth of a new child, the law permits individuals to take a "qualified birth or adoption distribution" of up to $5,000 from an eligible defined contribution plan or IRA without having to pay an early withdraw penalty.  We typically don't like to encourage withdrawals from plans during your income producing years, however if you do not have ample personal savings to fund a birth or adoption, this may be an option to consider.

  6. Employer Sponsored Plan Changes.
    Plan Eligibility for Long-Term Part-Time Employees:  Up until now, if you worked less than 1,000 hours per year, you were generally ineligible to participate in your companies 401K plan.  The law now requires employers maintaining a 401(K) plan to offer one to any employee who has worked at least 500 hours over 3 consecutive years or one full year with 1,000 hours worked.

    Expansion to Multiple-Employer Plans:  The act permits unrelated small businesses to share the administrative and financial burden of establishing and maintaining a retirement plan.  This allows employers to pool together and enjoy the economies of scale and offer better benefits to their employees.

    Increased Tax Credits for Small Businesses:  There are also tax credits to start-up a plan (up to $5,000 in plan start-up costs) and additional credits ($500 per year) for three years if the plan offers automatic enrollment.
Next Steps:  These as well as other provisions of the SECURE Act may have an impact on your planning strategies.  Our team would love to work with you to help clarify how they impact you personally and determine strategies moving forward.