By Eric Tashlein
Your Finances
Eric Tashlein
The end of the year saw the US Senate enact legislation that may affect your retirement planning in numerous ways. On Dec. 20, President Trump signed into law the SECURE Act, for “Setting Every Community Up for Retirement Enhancement Act of 2019.” It took effect Jan. 1.
The act is intended to help more Americans save for retirement via tax-advantaged savings accounts such as 401(k) plans and individual retirement accounts, or IRAs. Just 55 percent of American workers currently participate in a workplace retirement savings plan, according to the Bureau of Labor Statistics.
The SECURE Act makes it easier for small businesses to set up 401(k) plans and offers tax credits if they offer auto-enrollment. Here are the major parts of the act that could more directly affect you:
Increases the age of required minimum distributions. For many years the holders of 401(k) plans and IRAs have been required by law to withdraw at least a set amount from those accounts each year after reaching the age of 70 and a half, based on life expectancy figures from the 1960s. The act changes the age to 72, giving account holders another year and a half to build interest. If you turned 70 and a half in 2019, you will still need to withdraw your RMD by April 1. If you turn 70 and a half in 2020 or later, you can wait until age 72.
Eliminates the maximum age limit for traditional IRA contributions. Since many Americans work past retirement age now, the previous limit of age 70 and a half for contributing in full to an IRA has been dropped.
Brings more part-time workers to the table. Part-time workers may now qualify for employer-sponsored retirement plans if they have worked 1,000 hours in one full year or 500 hours in three consecutive years, a lower threshold that recognizes long-term part-time workers.
Adds annuities to the mix of investment options. By reducing liability for plan sponsors, the act encourages companies to include annuities among employees’ investing options within 401(k) plans.
Tightens stretch IRAs. So-called “stretch IRAs” allowed non-spouse inheritors of IRA accounts to withdraw annual RMDs across their expected lifespans. For some beneficiaries the new act requires the entire account to be withdrawn within 10 years. (The 10-year rule does not apply to surviving spouses, minor children, disabled individuals, the chronically ill, or anyone not more than 10 years younger than the deceased.) If you inherited an IRA from a person who died before Jan. 1, you may still make RMDs over your lifespan, no matter your age or status. If you inherit an IRA from a person who died Jan. 1 or later, you must withdraw all of the money within 10 years unless you fall within one of the five eligible classes.
This is by no means a full account of all the changes made by the SECURE Act, so I would encourage you to consult a professional financial planner or financial advisor to see how it affects you.
Eric Tashlein is a Certified Financial Planner professional™ and founding Principal of Connecticut Capital Management Group, LLC, 2 Schooner Lane, Suite 1-12, in Milford. He can be reached at 203-877-1520 or through connecticutcapital.com. This is for informational purposes only and should not be construed as personalized investment advice or legal/tax advice.