What is the SECURE Act, and How Will it Affect My Retirement

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The highly debated and far reaching SECURE Act has passed!

This piece of legislation will directly impact every American citizen who either has or hopes to have any form of retirement account.

The “Setting Every Community Up for Retirement Enhancement Act” (or S.E.C.U.R.E. Act) is a piece of legislation which was not considered individually by Congress but was rather submitted as part of an end of year appropriations act designed to, among other things, prevent a government shutdown. 

The bill passed on December 19, 2019 and was signed into law on December 20, 2019, becoming effective on January 1, 2020. Its main purpose is to provide additional opportunities for workers to increase their retirement nest-egg, to allow some more flexibility on how these funds may be used prior to retirement, and, of course, to find a way to pay for these benefits.

The following are some of the main provisions from the law:

Employer Sponsored 401(k) Plan Annuities

Under the prior law, employers who offered their employees annuity options as part of their 401(k) plans bore the burden of ensuring that such an annuity was in the best interest of the employee.  The SECURE Act has shifted that burden to the insurance companies who actually sell the annuities.

Raised Required Minimum Distribution Age from 70 ½ to 72

Previously, owners of certain retirement accounts were required to begin withdrawing from their account once they reached age 70 ½.  These withdrawals are known as Required Minimum Distributions (or RMDs).  The SECURE Act increases the age at which individuals must begin taking RMDs from 70 ½ up to age 72.

Removes Age Limitation for IRA Contributions

Before the implementation of the SECURE Act, individuals were required to stop contributing to their Traditional IRAs once they reached age 70 ½.  Under the SECURE Act an individual may continue to contribute to their Traditional IRA so long as they continue working, even past age 70 ½.

Increased Opportunity for Part-Time Workers

Under prior legislation part-time workers who worked less than 1,000 hours per year were generally ineligible to participate in their company’s 401(k) plan.  The SECURE Act provides that employers offering a 401(k) plan must include options for any employee who worked more than 1,000 hours in one year, or 500 hours over 3 consecutive years.

Change to Inherited IRA Options

Until now if you inherited an IRA from someone other than your spouse you would have the option to “stretch” your distributions over the course of your lifetime.  With few exceptions, the new SECURE Act requires that the IRA be fully distributed to you over the course of 10 years.

What to do Now?

The SECURE Act will significantly affect the way estate planning attorneys and financial advisors counsel their clients. If you have any retirement accounts (for example, an IRA, 401(k), 403(b), SEP IRA, SIMPLE IRA, etc.) you should schedule a time to meet with an estate planning attorney and a financial advisor to see how this major change in the law will affect you.