On December 20, 2019, President Trump signed into law the Setting Every Community Up for Retirement Enhancement Act, known as the SECURE Act. This bipartisan bill represents the most sweeping retirement reforms in over a decade and has a variety of provisions that will have an immediate and profound impact on both employer plans and individuals. Many of these changes will take effect on January 1, 2020, and will likely have a wide reaching impact on savers and retirees alike.
Increase the Required Minimum Distribution (RMD) Age to 72
The SECURE Act extends the RMD starting age from 70½ to 72. This can let your client’s retirement savings grow longer before being forced to tap into them.
Removes the Age Limits for Traditional IRA Contributions
Americans are living longer, and an increasing number are choosing to continue working beyond the traditional retirement age. As a result, the SECURE Act allows those individuals over age 70½ who have earned income to continue saving for retirement by contributing to a traditional IRA.
Eliminates the “Stretch IRA”
Perhaps the most significant change, the SECURE Act now requires most non-spouse beneficiaries to withdraw taxable, inherited IRA assets within 10 years, rather than stretching them over their lifetime. Now is a great time to review your clients’ beneficiary arrangements, especially those with trusts named as retirement account beneficiaries. This is also an opportunity to introduce alternative strategies such as Roth conversions or using life insurance to enhance wealth transfer for those with substantial IRA assets.
Expanded Benefits for Part-Time Employees
Prior to the SECURE Act, employers could exclude part-time employees when providing a defined contribution plan, such as a 401(k), to their employees. Under the new law, certain part-time employees will now be able to participate in their employer-sponsored retirement plan. This opens up a whole new planning opportunity for those who work part-time and meet the new requirements.
Lifetime Income Disclosure and Annuities in Retirement Plans
Under the SECURE Act, providers of defined contribution plans will be required to disclose annually the monthly lifetime income value of retirement accounts. In essence, this disclosure brings favorable attention to annuities by showing plan participants how much lifelong income they would receive from their retirement account. The SECURE Act also supports the availability and portability of annuity options with retirement accounts.
With change comes opportunity. Many of these changes will undoubtedly affect the planning you have done for many of your clients. This is a great opportunity to contact those clients to discuss what this new legislation means to them and their retirement plan. Our team of experts here at SMS is here to help you.