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The SECURE Act and How it Affects Your Retirement

The SECURE Act and How it Affects Your Retirement
While the holidays were unfolding, Congress was busy signing into law the SECURE Act (Setting Every Community Up for Retirement Enhancement) which has made several important changes concerning defined contribution and defined benefit plans, IRAs and 529 plans.  Most provisions in the law became effective on January 1st, 2020.  Below are some general topics and answers on the main highlights of the new law:
 
Inherited IRAs

Any inherited IRAs that were received prior to 1/1/2020, no changes are required to the current distribution schedules in place.  Going forward, however, fewer beneficiaries will be able to extend distributions over their lifetime (a.k.a “the Stretch IRA”).  In most situations there will now be a requirement that all assets must be withdrawn from the inherited IRA within 10 years.  Some of the exceptions to this rule include surviving spouses, minor child, a disabled or chronically ill individual and beneficiaries who are no more than 10 years younger than the decedent.  This change has the potential to drastically change the tax burden for individuals in their peak earning years as income is accelerated at the personal level.    

Required Minimum Distributions (RMD)

Prior law required individuals to take their first RMD after turning age 70 ½.  The new law states that individuals turning age 70 ½ in 2020 or later will now be allowed to defer their first RMD until age 72.  The change is in line with the reality that individuals are working and living longer allowing them to continue contributing and benefit from additional compounded growth.  

IRA Contributions After 70 ½

Many more Americans are working past their traditional retirement age.  To accommodate this trend, individuals can now contribute to an IRA past the age of 70 ½ as long as they are still working and have earned income.  

Employee Access to 401k Plans

Employees that worked less than 1,000 hours per year were generally ineligible to participate in a 401k plan.  Going forward, employees that worked 1,000 hours in one year and 500 hours over 3 consecutive years can now be offered to participate in their workplace plan.  

529 Plan Changes

In most cases, families might have leftover funds in their students 529 after graduation.  If this is the case, funds in a 529 savings account can pay up to $10,000 in student debt over the course of a student’s lifetime.  Certain apprenticeship programs are also under consideration with the new law.
 
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