The “Setting Every Community Up for Retirement Enhancement” (SECURE Act) legislation was signed at the end of December 2019 and is effective January 2020.
The SECURE Act puts into place several changes that are intended to strengthen the security of retirement across the country.
Here are some key takeaways to be aware of:
Annuities in 401(k) plans – The SECURE Act allows sponsors to include more annuity options within their 401(k) plans. The upside here is that some annuities provide an income stream for the course of a retiree’s lifetime, which can be beneficial now that Americans are living longer, fuller lives in retirement. Things to be aware of: The downside is that annuities are complex investment products and the wrong choice can really make a bad impact on your retirement. We recommend that you visit with a financial advisor before moving forward with a plan. Annuitization could lead to bigger fees and penalties if used incorrectly.
Increasing the Required Minimum Distribution (RMD) age and contribution age – Account holders of qualified accounts such as a 401(k) or IRA had to withdraw required minimum distributions (RMD’s) starting the year they turned age 70½. RMD’s now begin at age 72 -if you are turning 70½ in the calendar year of 2020. Increasing the age for RMD’s could cause some tax implications, depending on which tax bracket you’ll be in the year you take your withdrawal. It would be
a good idea to visit with your tax and financial advisors to make sure there aren’t any changes that need to be made to your retirement plan. Things to be aware of: If you turned 70½ years old in 2019, you will still need to withdraw your RMD in 2020. Failure to do so results in a 50% penalty of your RMD. If you have already started taking your RMD’s, you should generally continue taking them, but you may want to speak to your tax advisor regarding any 2020 distributions. IRA Contributions: You can now continue to contribute to your traditional IRA past age 70½ as long as you are still working.
No more Stretch IRA’s – Previously, if you inherited an IRA or 401(k), you could stretch your distributions and tax payments out over your lifetime. Now, for inherited IRA’s from the original owners who have passed away on or after January 2020, the new law requires beneficiaries to
withdraw all assets of the inherited account within 10 years. Things to be aware of: There are some exceptions to the 10-year rule, but if you have an IRA that you planned to leave to your beneficiaries, you may want to visit with a tax advisor, estate attorney, and a financial advisor to reevaluate your options. If you are the beneficiary of an inherited IRA or 401(k) and the original owner passed away prior to January 1, 2020, this change should not impact you.
Changes in the tax code, family relationships and your financial goals are common. We recommend that you schedule a meeting with us soon to review your financial situation if you haven’t reviewed it recently. It’s important to evaluate your situation annually and make any necessary changes.
If you have any questions or concerns about how the SECURE Act could impact your retirement, give us a call at 801-465-6990.
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