The SECURE Act is a major piece of retirement legislation that is currently being considered by Congress. It has passed the House of Representatives and is currently in the Senate.
It contains several key factors that would affect individuals and employers alike. In this blog, La Ferla Group will focus on the potential impact that the SECURE Act might have on individuals.
What is the SECURE Act?
The Setting Every Community Up for Retirement (SECURE) Act could bring significant changes to retirement planning. If it passes the Senate, the SECURE Act will go into effect on December 31, 2019.
4 Key Aspects of the SECURE Act
1. Age Limit Removed for IRA Contributions
Currently, there is a rule that prevents workers age 70 ½ from contributing to Traditional IRAs. Under the SECURE Act, this limitation would be removed and workers of all ages could contribute to Traditional IRAs.
This is meant to help account for the fact that people in the United States are working and living longer than previous years, on average.
2. Required Minimum Distribution Age Increased
As it stands now, the law requires that most individuals begin taking required minimum distributions (RMDs) from their retirement accounts at age 70 ½. The passage of the SECURE Act would raise that age to 72. Another bill in front of the Senate, the Retirement Enhancement and Savings (RESA) Act, would push that age back even further to 75.
Increasing the RMD age allows people with tax-deferred retirement savings to grow that money for an even longer time.
3. Stretch for Inherited IRAs Effectively Eliminated
When an IRA is passed to a non-spouse beneficiary, its tax-deferred status is extended because the beneficiary can then spread distributions over the course of their own life expectancy. This is known as a “stretch IRA.”
The SECURE Act would effectively eliminate stretch IRAs by requiring most beneficiaries who inherit retirement plans to withdraw the entire balance over the course of a 10-year period.
4. Penalty-Free Withdrawals for New Parents
In most cases, Certified Financial Planner™ professionals recommend not to make an early withdrawal from any retirement account, because it will result in a considerable penalty.
However, under the SECURE Act, new parents, whether through birth or adoption, will have the option to withdraw a total of $5,000 from a retirement plan without being penalized. The withdrawal will have to occur within one year of the child’s birth or the finalization of the adoption.
In order to understand the exact impact that the SECURE Act might have, it’s recommended that you meet with a Certified Financial Planner™ professional.
