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Understanding the SECURE Act

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Were you aware that, in an effort to address the nation’s troubled retirement system, federal lawmakers passed a major reform last year known as the Setting Every Community Up for Retirement Enhancement Act, or the SECURE Act? 

The legislation is meant to help more people accumulate assets for retirement and for good reason. According to the U.S. Bureau of Labor Statistics, only 51 percent of working Americans participate in a workplace retirement plan and many who do are alarmingly behind.

The SECURE Act allows part-time workers to qualify for employer-sponsored retirement programs, 401(k) plans to offer annuities, and small businesses to set up “safe harbor” retirement plans that are less expensive and easier to administer.

Among the most significant changes are an increase in the age of required minimum distributions (RMD) from 70½ to 72, and the elimination of an age restriction for contributing to a qualified tax-advantaged account, which is currently 70½. Both provisions allow retirement assets like 401(k)s and IRAs to grow larger. 

Other changes include penalty-free early withdrawals of up to $5,000 to defray the costs of having or adopting a child, and allowing 529 college savings accounts to be used for repaying student loans (up to $10,000 annually).

The SECURE Act also changes how tax-advantaged retirement accounts can be distributed to an account holder’s estate beneficiaries. Prior to the reform, beneficiaries could “stretch” their inherited distributions over a long period of time, even their lifetimes. This allowed for continued asset growth and lower annual distribution taxes.

Now, beneficiaries must withdraw the entire balance of an inherited retirement fund within 10 years of the account owner’s death. The opportunity for tax-deferred growth may be substantially limited and tax payments may likely increase due to larger distributions. These changes also risk putting cash into the hands of financially immature heirs, something every estate plan should attempt to mitigate. 

Whether taking advantage of the increased access to retirement savings accounts or restructuring an existing estate plan to adapt to SECURE Act changes, our office can help you navigate a complicated landscape to best meet your individual needs. Everyone deserves to enjoy retirement, and a well-crafted plan will provide peace of mind. Call us today to schedule a meeting to discuss this more.