The SECURE Act

Congress recently passed the SECURE (Setting Every Community Up for Retirement Enhancement) Act which affects our nation’s retirement system significantly.  It is hoped to help Americans save more by making it easier for individuals to fund their retirement with their own savings.

There is concern that with Americans living longer, a significant portion of Americans risk outliving their retirement savings. 

Previously, when a person reached the age of 70-1/2, it was mandatory that they begin to take required minimum distributions (RMD) from their retirement plans.  The SECURE Act increases that age to 72 years.  (This applies to people who turn 70-1/2 after December 31, 2019.) 

If you are between the ages of 59-1/2 and 72, you are able to take distributions without penalty.  However, if you are younger than 59-1/2, you can take hardship withdrawals subject to a 10 percent penalty.  All withdrawals are subject to income tax, regardless of age.

 Provided you have earned income to contribute to a traditional IRA or Roth IRA, the contribution cut-off age has also been raised from 70-1/2 to 72, which enables people an additional 18 months to contribute. 

Another major change is that people who inherit tax-advantaged retirement accounts in 2020 and beyond must receive distribution of the entire account inherited within ten years and pay any taxes owing.  Previously, beneficiaries inheriting a retirement account could spread the distribution over their respective lifetimes. 

Smaller employers now have the option to join with other companies to establish 401(k) plans to enable them to offer their employees a way to save for retirement. 

The SECURE Act will also permit people saving in a 529 college savings plan to use up to $10,000 to pay off student loans.

Certain part-time workers are now eligible to participate in 401(k) plans. 

These are but a few highlights and, as with any major changes, it may take some time for everyone to incorporate the changes.

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Kay Sowa

About the Author

Kay Sowa is a paralegal in the Trusts and Estates Group at Capehart & Scatchard, P.A. She is an IRS Enrolled Agent, an Accredited Estate Planner®, and a Certified Trust and Financial Advisor. She oversees the trust and estate administration practice for the firm. She is an accomplished author and lecturer who has frequently spoken on behalf of a number of organizations including the National Business Institute and the Institute of Paralegal Education.

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