When it comes to retirement planning, what are you doing to prepare yourself to live comfortably after you stop earning income? Many people are unable to rely solely on Social Security Income, but they also do not have enough personal savings built up to adequately supplement themselves in their retirement years.
The SECURE Act
To help with this, at the end of 2019 a new SECURE Tax Law was passed that contains significant provisions aimed at increasing access to tax-advantaged accounts and preventing older Americans from outliving their assets.
The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 was signed into law by President Donald Trump on December 20, 2019 as part of the Further Consolidated Appropriations Act. It is the first real major piece of retirement legislation since the Pension Protection Act of 2006.
How the SECURE act affects individuals
Changes in Ages
- The legislation increases the age that you must begin taking required minimum distributions (RMDs) from your retirement accounts from 70.5 to 72. This change will only affect those who were born on or after July 1, 1949.
- The legislation repeals the current maximum age of 70.5 for traditional IRA contributions. The law will allow you to continue to contribute to your traditional IRA for as long as you are earning income.
- If you inherit an IRA after 2019, all distributions must be made by the end of the 10th year after the original owner’s death, except for distributions made to certain eligible designated beneficiaries. This also applies to inherited funds from a 401(k) or other defined contribution plan.
- The legislation permits parents to withdraw up to $5,000 from retirement accounts penalty-free within a year of birth or adoption for qualified expenses. This limit applies to both parents, so technically a couple could take out up to $10,000 if they have separate retirement accounts.
- The legislation will allow families to withdraw up to $10,000 from 529 plans to repay student loan debt. Principal and interest payments toward a qualified education loans will be considered qualified 529 plan expenses. However, the portion of student loan interest that is paid with tax-free 529 plan earnings is not eligible for the student loan interest deduction.
Additional Participation in Plans
- Starting in 2021, the legislation will allow long-term, part-time workers to participate in 401(k) plans. The requirement is that they have worked either 1,000 hours in a year or at least 500 hours per year for three consecutive years of service.
Preparing for Retirement
For individuals, the goal of the SECURE Act is designed to encourage employees to participate in savings plans for a longer period of time while also giving them the flexibility to withdraw funds in certain situations.
There are many ways to prepare for retirement, and it’s important to pick the savings plan that works best for you and your family. Please consider meeting with an Avizo Consultant to learn about customized retirement plans and Wealth Management options.
Chris VanArsdale, Strategic Analyst
Since the time when he joined Avizo Group in 2014, Chris has developed expertise in litigation support, international taxation, and complex entity and fiduciary taxation services. Always looking to the future, his current focus is to integrate data analytics into our processes and provide those capabilities to clients.