On December 20, 2019, the federal Setting Every Community Up for Retirement Enhancement Act, otherwise known as the SECURE Act, was signed into law. Congress devised this sweeping retirement reform to address the nation’s financial retirement crisis, and the law took effect on the first day of 2020. There are many changes and not all of them will benefit everyone. This is one of the main reasons why it may be imperative for you to revisit an existing estate plan as soon as possible.
Let us share a few key pieces of information for you to know right now. First, the SECURE Act contains the most significant changes to retirement planning in a generation. It expands access to various “tax-advantaged” retirement accounts, like Individual Retirement Accounts (IRAs) and 401(k)s, and is meant to help seniors avoid outliving their assets. Seniors have traditionally relied on Social Security income and their savings, but now they will purportedly be able to benefit from changes relating to certain retirement accounts.
There is more to know as well when it comes to the changes that have been enacted. Second, IRA contributions are now allowed for life. Before the SECURE Act, aging adults could no longer make regular IRA contributions after age 70½. Now, seniors can continue making IRA contributions as long as they have earned income. This should help support those who continue working later in life.
Third, annuities may be more attractive retirement payout options. Employer retirement plans, like 401(k)s, have mostly included annuity payout options in the past, but high fees and other risks have stifled them. That has changed as new “safe harbor” provisions protect annuity payout plans. A related benefit is that more employer retirement plans will now offer more lifetime income (annuity) options.
Fourth, required minimum distributions pushed to age 72. Until January 1st, required minimum distributions (RMD) from applicable retirement accounts had to begin at age 70½. This age, however, has been pushed to 72, which can allow for retirement assets to grow tax deferred for a slightly longer period of time.
Finally, inherited retirement account payout periods shortened to ten years. A potential harmful effect of the SECURE Act is that the entire balance of an inherited retirement account now has to be withdrawn and payed-out over 10 years from the owner’s death. The tax implications could be disastrous for loved ones in your estate if it’s not properly planned for.
There is much to consider with this new law in place. We know this article may raise more questions than it answers. We encourage you not to wait to learn the answers you need. You may contact our law firm to schedule a meeting with attorney Alan Hougum at your convenience now, or any time throughout the year.