As you may have heard, the SECURE Act (Setting Every Community Up For Retirement Enhancement Act), was signed into law by President Trump on December 20th, 2019. This law, which took effect on January 1st, is the most extensive retirement act since 2006, and may bring changes to your retirement plan. The key changes to note are outlined below. Please feel free to reach out with any questions or concerns you may have.
1. The Secure Act eliminates the age for making Traditional IRA contributions.
Previously, the maximum age to make Traditional IRA contributions was 70 ½. Note: this change applies to individuals who have not reached the age of 70 ½ by December 31st, 2019.
2. The Secure Act increases the required minimum distribution (RMD) age to 72.
Previously, qualified account owners (e.g. 401k or IRA) had to begin withdrawing RMDs in the year they turned 70 ½. By increasing the RMD age, you may be able to defer withdrawals longer.
3. The Secure Act allows penalty-free withdraws for child birth or adoptions.
You may now make a penalty-free withdrawal from any contributory retirement account up to $5,000 (lifetime distribution limit), to aid the cost of child birth or adoption. With that said, our advice is that your retirement accounts should be used as a vehicle for retirement only and should not be touched otherwise. However, please reach out if you would like to discuss your specific situation.
4. The Secure Act eliminates the “Stretch IRA.”
The Stretch IRA extended the tax-deferred status of an IRA when passed down to a non-spousal beneficiary. The IRA and relative tax advantages could be passed down to generation after generation.
The new law mandates inherited IRAs for non-spousal beneficiaries be fully withdrawn, and taxes paid, within ten years. Exceptions may be made; please call if you have questions.
Note: this is not retroactive and will not affect those who have inherited an IRA in, or prior to, 2019.
5. The Secure Act encourages employer-based retirement plans to offer annuities.
The new law will allow more employers to offer annuities as investment options within 401k plans. Insurance companies that sell annuities must now be the ones who vet and offer proper investment choices.
If your company offers annuities within retirement plans, you may note that although they provide guaranteed income throughout retirement, they are also very complex investment products and all options should be considered.
6. You can now use a 529 plan to repay student loans.
Although this may not affect retirement necessarily, it may impact your financial plan.
529 Plans are tax-advantaged savings accounts designed to save for college. The Secure Act expanded the definition of qualified higher education expenses to include student loan payments and the costs of apprenticeship programs. Owners may now withdraw up to $10,000 (lifetime limit per student) tax-free for payments toward qualified education loans and apprenticeship costs.
Colorado offers substantial benefits for 529 plans including tax-free growth, matching grants, and scholarship opportunities.
We would be happy to discuss 529 options with you. If you would like to hear more about college savings options, listen to our recent interview with Bill Fowler, Senior Vice President of the Daniel’s Scholarship Program.
These are what we thought to be the most important financial changes to note with the recent passing of the Secure Act. Please do not hesitate to call or email our office if you have questions regarding retirement. We would be happy to help.
Please keep in mind, if you have not scheduled your 2020 financial strategy meeting, now is the time. Give us a call to set up your phone, virtual, or in-person meeting.
Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Providence Capital Partners, Inc., a registered investment advisor. Providence Capital Partners, Inc. and Denver Wealth Management are separate entities from LPL Financial.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
No strategy assures success or protects against loss.
Traditional IRA account holders should consider the tax ramifications, ages, and income restrictions in regard to executing a conversion from a Traditional to a Roth IRA. The converted amount is generally subject to income taxation.
Prior to investing in a 529 Plan, investors should consider whether the investor’s or designated beneficiary’s home state offers state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state’s qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
Bill Fowler and the Daniel’s Scholarship Program are not affiliated with LPL Financial and Denver Wealth Management.