President Trump signed into law the ‘Setting Every Community Up for Retirement Enhancement’ (SECURE) Act, which became effective January 1, 2020. This bipartisan bill offers some useful features along with some very bad changes for both the wealthy and average earners.
The Good News
- Under prior law, you were required to begin taking Required Minimum Distributions (RMDs) upon turning age 70½. Now you can postpone RMDs until age 72. Note that if you turned age 70 ½ before January 1, 2020, you are still subject to RMDs under the prior law.
- SECURE Act provides tax incentives for small businesses to set up automatic enrollment in retirement plans for their employees or join multi-employer plans, meaning more access to company-sponsored retirement plans where none were available in the past. It also allows for a higher number of part-time employees to be eligible to participate in a company retirement plan.
- Under prior law, you were ineligible to contribute to a traditional IRA in the calendar year following the year you turned age 70½. The SECURE Act removes this age limitation.
The Bad News
The bad news is really bad news for both those who are well off and middle-income Americans.
- Non-spousal beneficiaries must take distributions (RMDs) over a ten-year period. Under prior law, a child or grandchild beneficiary, for example, could ‘stretch’ RMDs over their life expectancy. In many cases, this would be decades and allow most of the money to continue to grow tax-deferred…a huge benefit to those who could afford to postpone taking the money.
- The SECURE Act, heavily supported by the insurance company lobbyist, now allows annuities to be offered within the 401k-style retirement plans. Annuities are complicated insurance products, and most are not consumer-friendly. My best advice is to approach them with extreme skepticism and seek the advice of a highly experienced fee-only professional adviser before investing in one.
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FOX 6 TALKING POINTS
SECURE Act- Good News/Bad News
- Required Minimum Distribution age extended to age 72 (was 70½)
- Small business incentives to offer retirement plans
- No age limit for IRA contributions (was age 70½)
- Elimination of ‘Stretch IRAs’
- Allows annuities to be sold within retirement plans
Stewart H. Welch, III, CFP, AEP, is the founder of THE WELCH GROUP, LLC, which specializes in providing fee-only investment management and financial advice to families throughout the United States. He is the author or co-author of six books, including J.K. Lasser’s New Rules for Estate, Retirement and Tax Planning- 6th Edition (John Wiley & Sons, Inc.); THINK Like a Self-Made Millionaire; and 100 Tips for Creating a Champagne Retirement on a Shoestring Budget. More information about The Welch Group and important Disclosures can be found on our website. Investing in securities involves the risk of loss. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy will be profitable or equal any historical performance level(s). Consult your financial advisor before acting on comments in this article.