The SECURE Act and You.

Understanding how the SECURE Act affects your retirement savings.

1/16/2020 2:00:00 PM
The SECURE Act and YouThe Setting Every Community Up for Retirement Enhancement (SECURE) Act was passed and signed into law in December 2019. Understanding what the new law provides will allow you to look ahead and confidently develop plans for financing your retirement.
The SECURE Act has a number of provisions that may affect retirement savings, including basic aspects of IRAs, like the 70½ rule and the allowed age to contribute funds. Below is a summary of what you need to know about how the new SECURE Act could potentially affect your retirement savings. Contact us at your North Shore Bank office where someone can help answer your questions.

What is the SECURE Act? 

The Setting Every Community Up for Retirement Enhancement (SECURE) Act is a bipartisan retirement bill passed by the House of Representatives and by the Senate in December 2019. The bill that was included in a larger legislative package includes reforms to Defined Contribution Plans, Defined Benefit Plans, Traditional IRAs and 529 plans.

Contributions – Under the SECURE Act, there is no longer an age limit to contribute to a traditional IRA.  

An individual who has earned income may continue to contribute regardless of age. Previously, you could only contribute up until you turned 70½. This means that if you are still working at age 71, 72, or later, you can contribute to your traditional IRA. This applies to contributions for the taxable year beginning 1/1/2020.

Required Minimum Distributions (RMDs) – Under the SECURE Act, starting January 1, 2020, RMDs for traditional IRAs will not be required until the account holder turns 72. 

Under the previous IRA rules, IRA holders were required to take distributions from their IRA when they reach age 70½. This change is in effect for people who turn 70½ on or after 1/1/2020. Those who turned 70½ prior to 1/1/2020 are still required to continue to take RMDs.

Inherited IRAs – Under the new rules, most people will need to take distributions within a 10-year period.  

The new law modifies the required minimum distribution (RMD) rules with respect to defined contribution plans and IRA balances upon the death of the IRA owner who dies after December 31, 2019. As a general rule, distributions to individuals are required to be distributed by the end of the 10th calendar year following the year of the account owner’s death. However, there are some exceptions to the 10-year payout rule where RMDs may be stretched over a person’s lifetime for:
  • Surviving spouse of the account owner
  • Disabled or chronically ill individuals
  • Individuals not more than 10 years younger than the account owner
  • Child of the account owner who has not reached the age of majority

Additional Penalty-Free Withdrawals – The SECURE Act adds an additional way people can take distributions from their IRA prior to reaching retirement age in case of birth or adoption. 

The SECURE Act provides for penalty-free withdrawals from retirement plans for any “qualified birth or adoption distributions.” Individuals can take up to $5,000 penalty-free to cover the costs of adopting or giving birth to a child after 1/1/2020. While the individual would still pay regular income tax on the distribution, there is no penalty for using IRA funds during a time of financial stress.

Expansion of Section 529 Plans. 

This SECURE Act provision expands 529 education savings accounts to cover costs associated with registered apprenticeships; and costs (up to $10,000) of qualified student loan repayments, including those for siblings. The provision applies to distributions made after 12/31/2018.

Encouragement of Retirement Plans for Small Businesses.

There are a number of enhancements that remove risk or encourage small businesses to offer qualified retirement plan options. These changes include improved tax credits for plan establishment, tax credits for employers who have automatic enrollment in a retirement plan for their employees, and other benefits to encourage small businesses to offer retirement plans.
There are also changes that enable part-time employees to participate in retirement plans, if they have been with their employer for some time. This further encourages participation in retirement planning.

We’re here to help.

This overview offers you some key takeaways outlined in the SECURE Act. A number of these provisions will be subject to interpretations from the Internal Revenue Service or other authorities. As always, you should consult with your personal tax advisor regarding your own situation.
Remember, as your trusted financial partner, North Shore Bank is here to help clear up any confusion and offer you additional details about your retirement income from pensions, old 401ks, investment accounts, CDs or IRAs here or elsewhere.
Let’s connect to review your beneficiary designations, retirement and estate-planning preparations and find ways to best support your retirement savings preparedness plans.

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