How Does the New Retirement Legislation Affect YOU?
On December 20, 2019, President Donald Trump signed into law a spending bill containing the SECURE Act (Setting Every Community Up for Retirement Enhancement Act). The new legislation took effect on January 1st of 2020, and has left many financial institutions and financial professionals affected and scrambling to prepare.
Everyone is seemingly trying to get their arms around it all and determine how to provide answers to the questions they are getting from their customers. New details are likely emerging weekly.
According to multiple sources, here's some of the bigger positive takeaways from this new legislation that should be considered:
Increase the Required Minimum Distribution (RMD) Age to 72
The SECURE Act extends the RMD starting age from 70½ to 72. This can let your client’s retirement savings grow longer before being forced to tap into them.
Removes the Age Limits for Traditional IRA Contributions
Americans are living longer, and an increasing number are choosing to continue working beyond the traditional retirement age. As a result, the SECURE Act allows those individuals over age 70½ who have earned income to continue saving for retirement by contributing to a traditional IRA.
Eliminates the “Stretch IRA”
Perhaps the most significant change, the SECURE Act now requires most non-spouse beneficiaries to withdraw taxable, inherited IRA assets within 10 years, rather than stretching them over their lifetime. Now is a great time to review your clients’ beneficiary arrangements, especially those with trusts named as retirement account beneficiaries. This is also an opportunity to introduce alternative strategies such as Roth conversions or using life insurance to enhance wealth transfer for those with substantial IRA assets.
Expanded Benefits for Part-Time Employees
Prior to the SECURE Act, employers could exclude part-time employees when providing a defined contribution plan, such as a 401(k), to their employees. Under the new law, certain part-time employees will now be able to participate in their employer-sponsored retirement plan. This opens up a whole new planning opportunity for those who work part-time and meet the new requirements.
Lifetime Income Disclosure and Annuities in Retirement Plans
Under the SECURE Act, providers of defined contribution plans will be required to disclose annually the monthly lifetime income value of retirement accounts. In essence, this disclosure brings favorable attention to annuities by showing plan participants how much lifelong income they would receive from their retirement account. The SECURE Act also supports the availability and portability of annuity options with retirement accounts.
In Closing...
Although change can be scary, with change comes opportunity. It opens our eyes to ways we can better serve our clients and recommend new strategies that could actually be more beneficial to them. Leave your contact information below with your preferred time to call so we can discuss what this new legislation means to your client and their retirement plan.