The SECURE ACT, What You Need To Know
On December 20th, 2019, President Trump signed into law the SECURE Act (Setting Every Community Up for Retirement Enhancement). There are some changes in this law that will affect most Americans. I have summarized these changes for you, so you will understand how they affect you and your family. These changes go into effect on January 1st, 2020.
The Pro’s:
- The Required Minimum Distribution (RMD) age has been extended to age 72. Previously it was 70 and a half. This is the amount required to be withdrawn from your IRA on which you’re required to pay taxes. This new law allows your IRA to grow an additional year and half before you are required to begin taking distributions and paying its taxes. There may be some tax implications, depending on which tax bracket you will be in, at those specific ages. Be careful because if you turned 70 and a half in 2019, you are still required to take a distribution or be subject to a 50% penalty. The new age 72 begins in 2020.
- You can now make contributions into an IRA past age 70. Under the prior law, you were able to contribute to an IRA up until age 70 regardless of whether you were still working. With the new law, as long as you have earned income, you can contribute to an IRA at any age. This will help those who are still working after age 70 and would like the tax deduction.
- You can now withdraw $5,000 from your 401(k), penalty free, for the birth of a child or qualified adoption. This increases the list of penalty free distributions allowed from a 401(k) prior to age 59 and a half.
- The new law allows for the use of up to $10,000 annually from a 529 Plan (college savings account) to be used for qualified student loan repayments (including a sibling’s loans). It also expands the use of the 529 plans to cover expenses of private elementary, secondary or religious schools.
- There are a number of changes for 401(k) plans, as well. The new law allows for multiple small businesses to have a shared plan which lowers the cost of administering the plan. This should enable more small businesses to offer their employees 401(k) plans. The plan also allows for long-term part-time employees to participate in a company’s 401(k) plan so long as they work at least 500 hours a year. The law also encourages employers to ‘auto enroll’ employees into their 401(k) plans which will help people save for retirement.
The Con’s:
- The SECURE Act now requires those who inherited an IRA from a non-spouse to liquidate the IRA and pay taxes within 10 years. The previous law allowed for what’s called a Stretch IRA, where the one who inherited the IRA could either withdraw the balance over 5 years or take withdrawals during their lifetime (per the IRS schedule) which spreads out the income and in many cases allows for taxes to be paid at a lower bracket. This will call for some intuitive tax planning when one inherits a non-spouse’s IRA.
These changes could likely affect some of you. If you have any questions, please email or call me.
David Lieblich CFP®, EA – Lieblich Financial Services – 718-771-0887 – info@lfswealth.com – www.LFSwealth.com
The information and data in this report is for informational purposes only, were obtained from sources considered reliable, and are not intended to satisfy any compliance or regulatory conditions set forth by any governing body of the securities industry. The user is responsible for verifying the accuracy of the data received. You should consult your tax preparer or financial advisor prior to taking any actions that may affect your tax or financial situation.
