Written by: John DrachmanCongressional leaders and the White House delivered a legislative Christmas package that contains some of the biggest retirement plan-related changes in a decade. Called the SECURE (Setting Every Community Up for Retirement Enhancement) Act, this multi-form law aims to make it easier for Americans to save for retirement. With 29 new provisions or major rule changes, the Act makes it imperative for investors to know the top takeaways before scheduling some time with a professional advisor, planner or tax expert to review the finer points.
- You’re 80 and Want to Contribute to an IRA? No Problem. The Secure Act did away with the 70½ age limit for IRA contributions in step with the fact that many people are working and living longer. According to one academic study , delaying retirement by even one year is about 3.5 times as financially beneficial as saving an additional 1% of wages over 30 years.
- Mandatory RMD Age Jumps to 72. With limited exceptions, the mandatory age for taking required minimum distributions (RMDs) from IRAs goes from 70½ to 72 in 2020. This will mostly benefit those who have not yet turned 70.5 and are looking to keep their tax-deferred IRA compounding at full throttle. One caveat: Receiving higher distributions later might push you into a higher tax rate or even trigger increased Medicare premiums.
- 401{k)s Get a Boost. Workers can invest another $500 into their employer-sponsored 401(k)s in 2020, up to $19,500 in total. For those turning 50 or older next year, maximum contributions soar to $26,000.
- Say Goodbye to the Stretch IRA. Most IRA beneficiaries in 2020 will no longer be able to stretch their IRA distributions over their own life expectancy to benefit from smaller distributions at a lower tax bracket. Instead, IRA distributions will be restricted to a maximum of 10 years after 2019. However, tax planners are already mulling such workarounds as partial Roth conversions in anticipation that either the account owner’s or their beneficiary’s tax rate will be higher in the future.
- The Gig Economy Finally Gets Its Retirement Plan. SECURE opened a way for more mobile workers to save for retirement too. Specified multiple-employer plan (MEP) provisions facilitate how small companies and gig economy businesses can sponsor smaller plan offerings together.
- Need a good resolution for the New Year? Evaluate your current retirement strategy against the SECURE Act’s 2020 protocols. However, you may not want to unwrap this unruly legislative present on your own. Consider reaching out to a financial professional instead for help in putting the rules to work in a way that best reflects your personal goals, tax situation and savings.John Drachman is a contributing writer to www.myperfectfinancialadvisor.com, the premier matchmaker between investors and advisors .John is an IABC award-winning writer, who applies his 30 years of financial marketing experience toward advancing the dialog between investors and investment professionals.