The SECURE Act: The Biggest Change to Retirement Plans in 13 Years
Now that the Setting Every Community Up for Retirement Enhancement (SECURE) Act has been signed into law, you may be wondering what this sweeping legislation – arguably the most expansive update since the 2006 Pension Protection Act – means to your retirement. Here is my take on some of the most significant ways the SECURE Act changes things.
Losing the Stretch IRA
In my opinion, eliminating the Stretch IRA for most non-spouse beneficiaries means the SECURE Act is going to cause more harm than good for families who saved properly for retirement via IRAs and 401(k) plans.
Before, you could “stretch” your traditional IRA or 401(k) by bequeathing it to any non-spouse heir. They could then stretch the account distributions throughout their life. Now, with some exceptions, heirs besides your spouse must close an inherited IRA within a decade after receiving it, paying taxes on the proceeds much sooner.
In short, this may not damage your retirement, but it could hurt your children’s. As such, you may want to rethink how you contribute to, and spend down your retirement accounts. In particular, Roth IRAs and certain accumulation trusts will become more valuable planning tools.
IRA Contributions and RMDs
Let’s shift to some of the Act’s potential advantages. Most significantly, you no longer have to start taking a taxable Required Minimum Distribution (RMD) out of your traditional IRA until you reach age 72. (RMDs used to begin at 70 ½.) Plus, if you decide to work past age 70 ½, you can now keep contributing to a Roth or a traditional IRA.
Starting a Family and Paying for College
How you save and spend early on can also impact your retirement. Parents can now withdraw up to $5,000 from their IRA without penalty (but with potential income taxes) for birth or adoption events. Also, you can now use a 529 college savings plan for two new purposes: a qualified apprenticeship program, and to pay up to $10,000 in student loans, per student.
SECURE Act Planning
Those are a few of the biggest changes I see for most investors. Granted, YOU are not “most investors,” so talk to a financial professional about your own, post-SECURE Act retirement planning. In fact, with or without any legislative updates, it’s generally a good idea to seek ongoing retirement planning advice.
John A. Frisch, CPA/PFS, CFP®, AIF®, PPC™ founded Alliant Wealth Advisors in 1995 and has over 30 years of experience as a financial professional. In his free time, he’s an avid long-distance runner, a sport that requires discipline, patience and vision. John applies these same skills to his professional pursuits: He helps families and retirement plan sponsors adopt a patient, disciplined approach to overcoming financial challenges and reaching their distant goals along a clear path. Learn more at www.alliantwealth.com.