I am going to take a pause from taxes this week and talk about saving for retirement and the changes that
might impact you because of the Setting Every Community Up for Retirement Enhancement (SECURE) Act,
which was signed into law by the President on December 20, 2019.
Most Americans are not covered by a Pension at work, instead most are now covered by a 401(k) plan or
IRA, which are primarily covered by employee contributions. While many employers offer some sort of
match to 401(k) contributions, the bulk of the money contributed will be your dollars to pay for your
retirement. The SECURE Act was passed to help boost retirement savings.
For my entire career I have advised clients that they must start taking distributions from their retirement
accounts (required minimum distributions or RMD’s) at age 70 ½. Prior to age 70 ½ distributions were
optional but beginning at age 70 ½ they became mandatory. The SECURE Act raised the RMD age to 72.
That may not seem like a big deal, but for those not needing to tap a retirement account before they have
to, an extra 1 ½ years of tax‐deferred growth can mean a significant increase in retirement savings
available to them.
Not everyone is covered by a 401(k) at work, and many choose to contribute to an IRA to help pay for
their retirement years. Under prior law, even if you were still working, you had to stop contributing to an
IRA at age 70 ½. Even though they were required to start distributions, many older Americans are working
well into their 70’s and beyond and tax‐deferred contributions to their retirement account were not an
option. That changed with the SECURE Act, which eliminated the age‐restriction for IRA contributions.
Now, as long as you have earned income, you can contribute to an IRA.
Other taxpayer friendly provisions include lowering the eligibility for part‐time workers from 1,000 hours
annually to 500 hours, as long as you work at least 500 hours annually for three consecutive years and are
age 21 or older. Also, the penalty for early withdrawal has now been waived if you take up to $5,000 out
of your retirement account following the birth or adoption of a child. You have up to one year after the
child is born or the adoption is finalized to withdraw the funds, and you can put the money back later and
avoid income tax altogether.
There’s always bad news, and for some the biggest “bad” provision of the SECURE Act is the elimination
of “stretch” IRA’s. Under prior law, a non‐spouse beneficiary of an IRA had to start distributions from an
inherited IRA the year following the death of the account owner, but the beneficiary’s distributions were
figured over their lifetime, which could be decades. This allowed for many years of tax‐deferred growth.
Now, inherited retirement accounts with non‐spouse beneficiaries must be fully distributed within 10
years of the IRA account owner’s death. If the beneficiary is a spouse, the RMD’s still follow the old rules.
The SECURE Act made changes to retirement savings that potentially affect most taxpayers. There are
some planning opportunities but removal of the “stretch” IRA needs to be considered if your IRA is
intended to provide money to younger generations. If you would like to discuss how these changes
potentially impact you, please give our office a call.