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Congress Passes SECURE Act

January 09, 2020

The Setting Every Community Up for Retirement Enhancement (SECURE) Act has's what you need to know.

On December 20, 2019 the President signed the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 into law, making the biggest changes to retirement plans since 2006. Below, we dive into four of the notable changes.

What is the SECURE Act?

The SECURE Act was passed by the House in May 2019, but faced opposition from lawmakers, so it had languished the Senate for the past several months.

The Act aims to address the looming retirement crisis. According to a recent survey, only 36% of non-retired adults believe they are on track for a comfortable retirement. The survey also reveals that 25% of Americans have no retirement savings or pension.

The SECURE Act intends to strengthen retirement security across the country and make it easier and cheaper for small businesses to offer 401(k) plans, so that more people have access to a retirement savings vehicle.

4 important changes to note

  • Traditional IRA contributions can continue after age 70 ½- Under current law, individuals are prohibited from contributing to a traditional IRA after they’ve reached age 70 ½ (even if they are still working). As life expectancies increase and more people decide to work later in life, Congress decided that a change was needed. Under the new regulations, the rules for traditional IRAs will match the current regulations for 401(k) plans and Roth IRAs. These rules allow people of any age to continue contributing to retirement accounts so long as they have earned income..
  • Increase in age for beginning required minimum distribution (RMD) - Under the new rules, retirees must take their first required minimum distribution (RMD) at age 72 rather than 70 ½. The rule applies only to those who have not reached age 70 ½ by December 31, 2019.
  • Part-time workers can participate in 401(k) plans- In the past, employers have been able to exclude part time employees from participation in 401(k) plans. The new rules hold that people who have either worked at least 1,000 hours in one year or three consecutive years of at least 500 hours can participate in retirement plans.
  • Elimination of ‘Stretch’ IRAs – The new law mandates inherited IRAs with non-spouse beneficiaries (i.e. children or grandchildren) must be withdrawn within 10 years versus the beneficiary utilizing their life expectancy tables, in effect ‘stretching the IRA’. There are no required distributions within that 10 year period, but by the end of the 10thyear, the entire balance must be distributed.

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