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How the SECURE Act Makes Saving for Retirement Easier

Have you heard of the Setting Every Community Up for Retirement Enhancement (SECURE) Act? If not, this was bill signed into law in late December 2019 that included various reforms for how Americans could save for retirement.

Specifically, it set out to make saving for retirement an easier and more accessible goal by instituting policy changes to defined contribution plans like 401(k)s, individual retirement accounts (IRAs), defined benefit pension plans, and 529 college savings accounts.

Some of those policy changes include the following:

  • Removes maximum age for traditional IRA contributions
  • Increases required minimum distribution (RMD) age for retirement accounts from 70.5 to 72 years old
  • Permits long-term, part-time employees to participate in 401(k) plans
  • Provides more lifetime income strategy options
  • Allows penalty-free withdrawals of up to $5,000 from a parent’s retirement account within a year of birth or adoption to pay for qualified expenses
  • Permits up to $10,000 withdrawal from 529 plans to repay student loans

Let’s discuss some of these and other policy changes in a little more detail below.

Max Age for IRA Contributions Eliminated

It used to be that Americans could only make contributions toward their IRA accounts until they reach 70.5 years of age. Because we’ve been living and working longer, though, many of us are working well past the usual retirement age.

If you are one of these Americans, you can now continue to contribute to an IRA for as long as you continue working. By removing the maximum age for traditional IRA contributions, the rules for your IRS will line up a bit more with Roth IRAs and 401(k) plans.

The Required Minimum Distribution Age Increases

Previously, Americans with IRAs and 401(k)s were required to begin taking minimum distributions from these accounts by the time they reached 70.5 years old. The SECURE Act bumps that age up a bit to 72, giving Americans a little more time for their investments to grow before distributions must be made.

Some Part-Time Employees Can Join 401(k) Plans

Before the SECURE Act was signed into law, employees who worked fewer than 1,000 hours per year were usually unable to enroll in their employers’ 401(k) plans. This changes under the SECURE Act, which requires employers to offer 401(k) enrollment to employees who worked more than 1,000 hours in a year or at least 500 hours during three consecutive years.

This policy change, of course, does not override any existing collective bargaining agreements a union may have with the employer.

Inherited IRA Distributions Must Be Taken within 10 Years

It used to be that those who inherited someone else’s IRA or 401(k) could “stretch” their tax payments and distributions for the remainder of their lives. This was usually done as a way to have a reliable source of income.

Under the SECURE Act, however, assets must be withdrawn from inherited IRAs and 401(k)s within 10 years after the original account holder’s death. This rule only applies for accounts inherited after Jan. 1, 2020, when the SECURE Act took effect.

Exceptions to this rule apply when retirement assets are left to a minor child, surviving spouse, a disabled beneficiary, or a beneficiary who is fewer than 10 years younger than the original account owner.

Small Business Owners Can Claim a Tax Credit

If you’re a small business owner, there’s a new incentive available to start a retirement plan for your employees. When you establish a new plan, you can claim a $250 tax credit for each eligible employee, up to $5,000 (minimum $500). These employees must not be among the most highly compensated, but rather typical members of your company.

Qualified small business owners are those who employ up to 100 employees across a three-year period, beginning after Dec. 31, 2019.

Parents Can Withdraw Penalty-Free Money to Pay for a Child’s Birth or Adoption Costs

Birthing or adopting a child is expensive, especially if you don’t already have a healthy enough savings account established to handle it! Fortunately, the SECURE Act allows parents to leverage their retirement funds to afford birth/adoption costs penalty-free.

When a child is born or adopted, parents can withdraw up to $5,000 from a 401(k) or IRA without suffering the 10% early withdrawal penalty.

Pay Down Student Loans with Leftover 529 Funds

Student loans are notorious for remaining burdensome for years after they’re taken out, but the SECURE Act makes it possible to pay them down by using remaining funds in a 529 account. Up to $10,000 leftover in a 529 savings account can now go toward paying down student loan debt.

Want to Learn More? Reach Out to Us Today!

At Kitzke & Canfield LLC, we want members in our professional network to know about important changes provided by the SECURE Act that can impact the way saving for retirement works. If you’d like to learn more about how the SECURE Act could apply to your retirement savings plan, please reach out to our attorneys to learn more.

Get in touch with us today by contacting Kitzke & Canfield LLC online or by calling (262) 387-0706.