The SECURE Act, which stands for “Setting Every Community Up for Retirement Enhancement”, was signed into law at the end of 2019. The Act outlines changes that will affect people either approaching or already in retirement. The intention is to enhance retirement for people since we are working and living longer than ever before. Determining how much of an impact the SECURE Act will have on people’s retirement is still uncertain; however, understanding the details is critical in planning for retirement.
Changes Related to Your IRA
The main areas people will likely take notice are the changes surrounding their IRA. In the table below, you will notice the left side depicts what was in effect prior to the SECURE Act, while the right side illustrates changes effective after 12/31/2019.
|Previous Law||SECURE Act|
|Required Minimum Distributions begin at age 70 ½||Required Minimum Distributions begin at age 72|
|Unable to make IRA contributions after age 70 ½||No age restriction for IRA contributions|
|Inherited IRAs can be distributed over remaining lifetime – “Stretch IRA”||Inherited IRAs must be fully distributed within 10 years, unless you meet a beneficiary exception*|
- Surviving spouse
- Disabled person
- Chronically ill person
- Minor child (until age of majority, upon which the 10-year rule begins)
- Someone fewer than 10 years younger than the original IRA owner
With the RMD age being pushed back, you will have an extra year and a half to allow assets within your IRA to grow tax deferred. While this is good news regarding your IRA, the change to inherited IRAs is not as positive. Not being able to take advantage of the “Stretch IRA” is perhaps the biggest downfall of the SECURE Act for any non-spouse beneficiary set to inherit an IRA after 2019.
529 Plan Eligible Expenses
In 2017, the Tax Cuts and Jobs Act expanded the uses of 529 plans to allow expenses for K-12 private school tuition. Now, the SECURE Act has increased the function of 529 plans to allow student loan payments to be eligible. The maximum amount of 529 plan funds that can be used for student loan payments is $10,000 for a beneficiary.
Another added expense from 529 plans are costs associated with certain apprenticeship programs. This will be beneficial for parents who have children that do not end up at a traditional 4-year university but have saved in a 529 plan for much of their childhood.
The SECURE Act will affect people in different ways depending on their financial situation. To better understand how it may impact you, we are happy to have a discussion on any area that may be of interest.