February Topic of the Month: What is the SECURE Act and How Might it Affect You?

The Setting Every Community Up for Retirement Enhancement (SECURE) Act was signed into law on December 20, 2019. The bill is designed to increase access to tax-advantaged accounts and prevent older Americans from outliving their assets by making retirement plans more accessible for small businesses and part-time employees. It also pushes back the date at which those participating in a retirement plan are required to take their minimum distributions from 70½ to 72 and allows traditional IRA owners to keep making contributions indefinitely. This article explains the reasons for these changes and how these changes might affect you directly.

It’s well known that many folks are unable to live on their retirement alone, often supplementing their Social Security with their personal savings. In 2018, the U.S. Bureau of Labor Statistics found that only 55% of the adult population participate in a workplace retirement plan and that many who do are far behind when it comes to investing enough of their paycheck. In 2019, Vanguard found that the median 401(k) balance for those ages 65 and older was $58,035. The SECURE Act hopes to encourage employers who have shied away from participating in these plans due to difficulties with administering them to start offering retirement plans.

This Act makes it easier for small businesses to set up 401(k)s by increasing the cap under which they can automatically enroll workers in “safe harbor” plans from 10% of wages to 15%. It also provides a $500 minimum tax credit per year to employers who create either 401(k)s or SIMPLE IRAs with automatic enrolling. Businesses can now enroll part-time employees who work either 1,000 hours a year or have three consecutive years with 500 hours of service.

In addition to pushing back the age at which participants must begin taking minimum contributions, the following changes were made to benefit the user. Tax-advantaged 529 accounts can be used for up to $10,000 of qualified student loan repayments per year. It allows $5,000 from 401(k) accounts to be withdrawn penalty free to offset the costs of having or adopting a child.

The bill removes the provision of the stretch IRA, which allowed non-spouses inheriting retirement accounts to stretch out disbursements over their lifetimes. The new rule requires a full payout from the inherited IRA within 10 years of the death of the original account holder. This rule only applies to heirs of account holders who die in 2020 and beyond.

There are quite a few changes being made to retirement accounts that could affect you. To learn more and discuss your options, call Orsinger Investment Group, Inc. at (724)588-9067 to schedule an appointment and discuss your best options moving forward.