The New Year brings us some new retirement account rules in the form of the SECURE Act, which was signed into law by the President right before the holidays. Suzanne Himes, lead financial planner at Asset Planning Corporation is here with some of the highlights of this important legislation and what it means for our retirement savings.
SUZANNE, WHAT’S A LITTLE BACKGROUND ON THE SECURE ACT?
- Stands for Setting Every Community Up for Retirement Enhancement
- In the works for about three years and received bipartisan support
- Passed by House last summer but then was in limbo until it was suddenly attached to a vital year-end spending bill
- Most of the new rules went into effect January 1st; not retroactive
WHAT ARE SOME WAYS THE SECURE ACT WILL EFFECT OUR RETIREMENT ACCOUNTS?
Three changes to distribution rules that apply to both individual retirement accounts and most retirement plans like 401(k)s:
- Required Minimum Distributions; now start at age 72 instead of 70 ½
- Penalty-Free early withdrawals for childbirth or adoption up to $5K each
- Perhaps most notable is the elimination of the “stretch” provision for inherited accounts. Beneficiaries must now withdraw the entire account within 10 years, instead of being able to “stretch out” distributions over their own lifetime.
Exceptions to 10-year rule:
- Spouses
- Individuals no more than 10 years younger than account owner
- Disabled or chronically ill (as defined by the Internal Revenue Code)
- Minor children of account owner until age of majority; then 10-year rule kicks in
- Changes to stretch rules not effective for governmental plans until 2022.
WHAT ARE A FEW OF THE OTHER CHANGES WE SHOULD KNOW ABOUT?
Provisions to encourage retirement savings:
- Age limit removed for traditional IRA contributions if still working; now matches rules for 401(k)s and Roth IRAs
- Greater access to 401(k)s for long-term part-time workers
- Business tax credits for establishing a plan or adopting auto-enrollment provisions
Finally, will be easier for plans to include annuities as an investment option, so may see more offered.
FAST MARKET FACT: US RETIREMENT ASSETS
- 33 Percent of all household financial assets
- $10 Trillion in IRA’s
- $9 Trillion in 401(k)s
- $30 Trillion Total
QUESTIONS?
Want to learn more about the secure act and the effects it will have? Do you have other general questions about financial planning or investing? Send your questions to our Knoxville Certified financial planners or directly to suzanne@assetplanningcorp.com!
