The SECURE Act & Your RetirementSubmitted by Miller Financial Group | Red Oak Iowa Financial Advisor on January 16th, 2020
The SECURE Act & Your Retirement
By: Daniel S. Miller, CFP®
If you were busy with the holiday hustle-and-bustle, you may have missed that one of the biggest pieces of legislation to effect the retirement planning landscape was recently passed into law. With the passing of this bill, the odds are that your retirement planning picture and considerations will likely need to be reviewed. Because the SECURE Act, or Setting Every Community Up for Retirement Enhancement, Act has brought about sweeping changes for almost all retirement savers. This act changes age restrictions on when you can contribute to a traditional IRA, when you will be required to take minimum distributions and how your legacy funds contained in a tax qualified plan (401(k) / IRA) plans can be dispersed by your loved ones.
Required Minimum Distributions
Under the old rules, if you plan to keep working or have access to passive income that will support you into your 70s, then the requirement that you must start pulling money out of your IRAs and tax-qualified accounts at 70.5 can seem excessive. The SECURE Act now allows required minimum distributions to be pushed back to the age of 72 for those who have not yet started RMDs and have not yet turned age 70.5 by Jan 1, 2020. This will allow your monies to continue to grow, providing you with a better opportunity to pass on the bulk of your retirement accounts and potentially reduces your tax burden if you're still working.
Promoting Automatic Enrollment
Inertia can be a common driver for many less experienced investors. Small business owners will now receive a $500 tax credit for starting a retirement investment plan for their employees if they create the plan with an automatic enrollment option to set up a default investing plan for their employees. To enroll in the plan, employees need do nothing, but if they wish to not participate, they must opt out of the plan.
Elimination of the Stretch IRA
One of the major changes in the SECURE Act is the elimination of the ability of heirs of tax qualified retirement accounts and IRAs to stretch out required minimum distributions over the heirs lifetime. This feature has now been eliminated and the heir must liquidate the inherited IRA or tax-qualified account within 10 years. Spousal heirs, heirs within 10 years of age, and a few others are exempt from this new rule.
Prior regulations barred anyone over the age of 70.5 from participating in an IRA, though a Roth IRA could still be used. The SECURE Act removes this restriction, so if you plan to keep working and keep earning, you can still enjoy the tax benefits of a traditional IRA, continue with your investing goals and keep building for the future.
Invest in Your Loved Ones
In addition to setting up educational trusts for children and grandchildren, the SECURE Act provides an expansion of 529 plans to provide up to $10,000 for descendants and their siblings for the repayment of student loans. While paying tuition up-front may seem a more logical decisions, deferring up to the $10,000 limit will allow the monies in the 529 plan to grow over the course of the education path. As federal student loan plans require the government to pay interest on the loan while the student is in school, this $10,000 expansion can be a significant tuition savings over time.
Now that the SECURE Act is in place it presents both unique opportunities and challenges. So no matter how long you plan to work, it is more important than ever to make sure you understand the new rules and set up your retirement accounts with an eye toward tax savings and your legacy planning needs. Speaking with both your financial and tax professionals would be prudent to make sure you are moving forward in an efficient manner toward your retirement goals.
*Material presented is not intended as tax advice. For specific tax advice, please contact your own qualified tax professional.
Daniel S. Miller, CFP® is President of Miller Financial Group, Inc. with offices located in Bellevue, NE and Red Oak, IA. Dan and his team serve clients throughout the country as they prepare for the next stages of their financial lives. Dan is a published author of the book “Retirement Built to Last: Planning for When the Paychecks Stop” and has had articles published in the Wall Street Journal, Financial Advisors IQ, Successful farming and The Hill. He is also a dedicated husband, father, and advocate for the financial planning process and financial education.
Dan Miller, David Eads, Kaleb Robuck, and Marcus Taylor are investment adviser representatives of, and securities and advisory services are offered through, USA Financial Securities Corp. Member FINRA/SIPIC. A Registered Investment Advisor located at 6020 E Fulton St., Ada, MI 49301. Miller Financial Group is not affiliated with USA Financial Services.