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The SECURE Act
American Middle Class

The SECURE Act & Stretch IRA: 5 Key Retirement Changes

  • Congress passed, and President Trump signed the Setting Every Community Up for Retirement Enhancement (SECURE) Act. The bi-partisan law made severe changes in how Americans save and withdraw from their retirement account.
  • The Secure Act now requires the inherited IRA to be distributed within ten years of the IRA owner’s death unless the beneficiary is a spouse, disabled, chronically ill, or a minor.
  • Your traditional IRA used to require you to take RMD the year you turn 70 ½.  The Secure Act prolonged that to 72. You have an additional 1 ½ years to let your funds grow tax-free.
  •  The law requires 401(k) plan administrators to provide lifetime income disclosure statements to plan participants.
  • Visit the Financial Middle-Class homepage for more stories

As of January 1, 2020, you can no longer stretch non-spouse inherited IRA, which is one of the significant retirement changes from the Secure Act.  While you were busy buying Christmas gifts, Congress changed how you save for retirement and how your heirs can spend their inheritance.

Congress passed, and President Trump signed the Setting Every Community Up for Retirement Enhancement (SECURE) Act.  The bi-partisan law made severe changes in how you save and withdraw from your retirement account.  Here are the five significant changes from the SECURE Act:

No More “Stretching” for IRAs

Your children or grandchildren cannot let their inherited individual retirement account (IRA) grows tax-free anymore.  Before the law, a 21-year old who inherited an IRA, funds in a 401(k), or any other defined contribution plan from her father or grandfather could take required minimum distributions (RMDs) over her own lifetime.  

Stretching the inherited IRA over the heir’s lifetime allows it to grow tax-free.  The Secure Act now requires the inherited IRA to be distributed within ten years of the IRA owner’s death unless the beneficiary is a spouse, disabled, chronically ill, or a minor if the beneficiary is a minor, the 10-year rule kicks in once she’s 18-years old.

Prolong Required Minimum Distribution (RMDs)

Unlike your employer’s 401(k) that does not require you to start taking money out until you leave your job, your traditional IRA used to require you to take RMD the year you turn 70 ½.  The Secure Act prolonged that to 72.  You have an additional 1 ½ years to let your funds grow tax-free. The law made no changes to the Roth IRA.

Lifetime Income Disclosure Statements/Annuity Information

 The law requires 401(k) plan administrators to provide lifetime income disclosure statements to plan participants.  Similar to credit card disclosure statements that show users how long it will take them to pay off the credit card and how much interest charges they will incur if they only make the minimum payment; the lifetime income disclosure statements will show plan participants how much money they could get each month, for the rest of their life, if they convert their 401(k) to an annuity.

The Secure Act also removed restrictions for 401(k) plan sponsors to offer annuities.  With the continuous talks about social security going bankrupt, converting a 401(k) to annuity can guarantee retirees a lifetime income.  However, you have to do your due diligence because surrender charges and many other fees can turn an annuity into a disastrous financial product.

Lower 401(k) Criteria for Part-Time Employees

Employers can omit part-time employees who work 1000 hours or fewer during the year from their 401(k) plan.  Now under the Secure Act, part-time employees who worked at least 500 hours per year for at least three consecutive years are eligible to participate in their employer’s 401(k) or other defined-contribution plans. 

The law has multiple ways to incentivize small businesses to offer retirement plans to their employees.  The Secure Act allows small businesses to band together to provide retirement plans for their employees and increases tax credit to reduce the cost of setting up new 401(k) plans. 

Have A Child on Us

The Secure Act lets you dig into your 401(k) or any other qualified retirement plan without any penalty. You and your partner can withdraw up to $10,000 out of your retirement accounts penalty-free.   You don’t get penalized, but you still have to pay taxes, and you have to withdraw the money within one year of the child’s birth or adoption.

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