The SECURE Act and You

The SECURE Act and You

February 26, 2020
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The Setting Every Community Up for Retirement Enhancement (SECURE) Act was signed into law December 20th and went into effect January 1st, 2020.  The new act could affect everyone, but the most immediate impact felt will be by those nearing retirement. Below are three immediate effects of the SECURE Act and what it can mean for your retirement plans or options. As always, it is also most beneficial to speak with an experienced financial consultant who can help clarify every part of the SECURE Act and how it relates to your financial plans. If you are local to Winchester, VA, John Clawson is a well-rounded financial advisor who can assist in using the effects of the SECURE Act to further your financial goals.

Modified rules to the IRA Required Distributions

Traditionally, if you had money in an Individual Retirement Account (IRA) or an employer sponsored retirement plan, you were required to start making withdrawals (Required Minimum Distribution or RMD) beginning at 70 1/2 years old. However, the SECURE Act changes that requirement. If you had not hit 70 1/2 by the end of 2019, the Act allows your RMD start date to be pushed back to 72 years old. By having the RMD start date later, it allows for additional time to let your IRA or 401(k) the potential to grow without being depleted by distributions and taxes. You are also still able to make contributions to your IRA, thus providing more retirement funding for the years to come.

Changes to the “stretching” of inherited IRAs and 401(k)s

Another area you can expect to see change from the SECURE Act is to the “stretch” provisions for beneficiaries of IRAs and defined contribution plans, like 401(k)s. Typically, if a traditional IRA was left to a beneficiary, that person could stretch out the RMDs over his or her own life expectancy, thus “stretching” out the tax benefits of the retirement account. As of January 1st, 2020, most IRA beneficiaries will now have to distribute their entire inherited retirement account within 10 years of the year of the death of the original owner. There are a few exceptions to this rule. Surviving spouses, children (minors), disabled individuals, and those not more than 10 years younger than the deceased.

However, if you have already inherited a “stretch” IRA, the changes listed here only apply to the beneficiaries of someone who died after the end of 2019. It is important to make sure you take account and review your beneficiary designations of your retirement account to align with the new beneficiary rules. This is another area where it would help to speak with a financial planner who can help tailor the changes from the SECURE Act to your financial and retirement needs.

Increased options in small business retirement plans

The SECURE Act is not only making changes that impact those close to or already in retirement. It is also giving tax incentives to small business owners to set up automatic enrollment in retirement plans for their employees. The Act will also allow multiple small businesses to band together with other companies to offer Multiple Employer Plans (MEP)—retirement savings accounts to employees who did not have the option in the first place. The SECURE Act will also allow more part-timers to take advantage of employer sponsored retirement plans as well. However, we won’t likely see that option until 2021.

All in all, the Setting Every Community Up for Retirement Enhancement Act will put into place a number of provisions intended to help strengthen retirement security. To use these new options to help improve your own retirement plan, John Clawson offers a complimentary, no obligation, financial review to discuss your retirement options.

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*Shenandoah Valley Financial Services is located in the city of Winchester in Frederick County, VA. We serve as financial advisors to clients in the Mid-Atlantic Region primarily in the states of VA, MD, DC, FL, NC, SC, PA, and WV.

 

This is meant for educational purposes only.  It should not be considered investment advice, nor does it constitute a recommendation to take a particular course of action. Please consult with your financial professionals regarding your personal situation prior to making any financial related decisions.  Waddell & Reed and its representatives do not offer tax or legal advice.  02/20