After months of nearly bringing it to the finish line, it is now official: the Setting Every Community Up for Retirement Enhancement (SECURE) Act was signed into law in December.
The SECURE Act provides a mixed bag of incentives and obligations for retirement savers and service providers alike. Its intent is to make it easier for families to save more for retirement.
That said, easier does not necessarily mean less complicated. To jump-start the conversation, here is an overview of the most significant changes we see as the SECURE Act starts rolling out in 2020.
As you might expect, all the points below come with detailed exceptions and disclaimers that may influence how they apply to you. Before proceeding, please consult with appropriate professionals, such as your financial advisor, accountant and/or estate planning attorney.
Compared to previous generations, more Americans are living longer, remaining employed into their 70s and shouldering more of the duty to fund their own retirement. As such, the SECURE Act includes several incentives to start saving sooner, and keep saving longer.
Making it easier to pay off student debt is also expected to benefit your retirement saving efforts.
Even if you are not a business owner, it is worth being aware that employers in general – and small businesses in particular – are being recruited to help employees save for retirement.
So far, we have been covering the “carrots” meant to encourage retirement saving. There is also an important “stick.” It is presumably to offset the expected reduction in federal income tax collections, due to increasing the RMD age to 72. The SECURE Act eliminates the use of stretch IRAs for most non-spouse beneficiaries, which could impact your current or future estate planning.
To be clear, a stretch IRA is not a formal account type. It is a practice that enabled you to bequeath your IRA assets to your heirs, who could then keep the inherited account intact and tax-sheltered, essentially throughout their lifetime. With some exceptions, heirs will now be required to move assets out of inherited IRA accounts within a decade after receiving them, thus having to pay taxes on the proceeds much earlier than under the old law.
A number of articles in the SECURE Act are aimed at helping you not only save for retirement, but feel more confident you will not run out of money once you get there. As such, the Act is making it easier for employers to add lifetime income annuities to their plans, as a distribution option for employee participants.
The SECURE Act also has established new reporting requirements for your employer. The new report is meant to make it easier for you to envision how much of a lifetime income stream you can expect, if you decide to annuitize your accumulated retirement plan assets. This reporting requirement does not take effect until a year after the Department of Labor has established a set of rules for your employer to follow when creating your report, which could take a while.
Bottom line, we applaud the overall idea of creating a secure retirement, but there are many ways to go about achieving it. If you are considering annuitizing some of your retirement assets today or in the future, we hope you will reach out to us or your financial advisor to explore the possibilities in the context of your own circumstances.
There are quite a few other components to the SECURE Act. Some of them are aimed at managing access to your retirement savings for pre-retirement spending needs. For example, the SECURE Act now allows parents to withdraw up to $5,000 from their IRA without penalty (but with potential income taxes) for birth or adoption events. It also now prohibits plan providers from allowing participants to take out 401(k) plan loans using credit cards.
We prefer building financial plans that budget for upcoming spending needs, without requiring you to tap into your retirement reserves. If your financial plan might fall short on that count, we would be happy to get together with you and discuss how we might be able to assist.
What can we expect moving forward? Not every component in the SECURE Act is effective immediately. Some may continue to come into sharper focus over time. As such, you may want to make some changes to your financial planning in the near future, while other steps may be required or desired over time.
This is to be expected, given the number of reforms enacted in this sweeping bill. Please let us know if we can help you ensure that your retirement planning complies with and takes optimal advantage of the SECURE Act of 2019.
This post was prepared and first distributed by Wendy J. Cook.
Shore Point Advisors is registered as an investment adviser with the State of New Jersey. Shore Point Advisors only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements. Past performance is not indicative of future returns. All investment strategies have the potential for profit or loss. There are no assurances that an investor’s portfolio will match or outperform any particular benchmark. Content was prepared by a third-party provider. All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. All expressions of opinion reflect the judgment of the authors on the date of publication and are subject to change.
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