The SECURE Act: What You Should Know
Many Americans are considered to be behind on retirement savings. In fact, Vanguard revealed in 2019 that the median 401(k) balance for individuals age 65 and older is roughly $58,000.
In addition, many baby boomers (age 55-73) are nearing retirement and 17% have less than $5,000 in retirement savings, according to data from Northwestern Mutual’s 2019 Planning & Progress Study.
The SECURE Act is intended to help and encourage Americans, at any age, conscientiously save for retirement.
What is the SECURE Act?
The SECURE Act, which stands for Setting Every Community Up for Retirement Enhancement, was approved by the Senate and signed into law in December of 2019. It was passed by the Senate on December 20, 2019 and signed by President Trump the following day.
The SECURE Act is intended to help Americans prepare and save for their retirement years, potentially impacting how current retirement savers utilize their individual retirement accounts and funds.
What to Know About the SECURE Act & How It May Affect You
Required Minimum Distributions (RMDs)
Under the SECURE Act, RMDs have been pushed back from 70 ½ to 72 years old.
If you are over the age of 70 ½ you no longer need to take RMDs until you reach the age of 72. However, Americans who turned 70 ½ in 2019 are required to complete their RMD for 2019 by April 1 of this year.
Previously, individuals were not able to contribute to their IRA once they reached 70 ½ years old. Under the new law, individuals are allowed to contribute to a Traditional IRA after age 70 ½.
Because people are beginning to live longer and retire later in life, the new law allows you to contribute to your IRA if you have earned income over the age of 70 ½.
Inherited & Stretch IRAs
In the past, the “Stretch IRA” allowed non-spouses who inherited a retirement account to take disbursements over their lifetime. Now, if you inherit an IRA, it needs to be fully paid out within 10 years of the death of the account holder.
Small Business Owners/Employers
If you own a small business, the SECURE Act contains provisions intended to make it easier for you to set up 401(k)s for employees.
The new law allows small businesses to access multiple employer plans (MEPs), meaning small businesses have the opportunity to pool their resources together to offer a retirement plan that can be more cost effective and easier to administer.
The automatic escalation limit has been increased from 10 percent to 15 percent for workers who enroll in “safe harbor” retirement plans.
To help encourage retirement savings across the country, the new law provides an annual tax credit covering up to $5,000 of plan costs for the first three years of offering a workplace retirement plan. In addition, there is a $500 tax credit for employers that have up to 100 employees who include automatic enrollment in their plan for up to three years.
Part-time employees who work 1,000 hours per year or have worked three consecutive years for 500 hours now have the opportunity to enroll in their employer’s retirement plan. Previously, employers were not required to allow part-time employees to enroll in the company plan.
If you have a child/adopt a child, you may take a distribution up to $5,000 from an applicable eligible defined contribution plan or IRA without incurring a 10-percent penalty.
contribution plan or IRA without incurring a 10-percent penalty.
Roth IRA Conversions
With the given provisions of the SECURE Act, financial institutions have noted that a Roth IRA may be a more advantageous account for retirement savings. With a Roth IRA, there is no RMD. Also, contributions are made after-tax, meaning qualified distributions are tax-free.
David Demming of Demming Financial said in a Forbes.com article, “As marginal tax rates have declined, our enthusiasm for Roths has increased. We have completed hundreds of Roth conversions and frequently take after tax withdrawals from 401-K’s to Roths…”
Some individuals may find it beneficial to convert funds from a Traditional IRA to a Roth IRA, known as a “Roth conversion.”
When does the SECURE Act become effective?
Most provisions of the SECURE Act are effective as of January 1, 2020.
Yes. Once your account has been opened and you have your own Client Access PIN (personal identification number) you can check the status of your transfer online or feel free to contact Equity Trust. Our intuitive and interactive account management site, myEQUITY, provides a responsive experience for computers, tablets and mobile devices offering around-the-clock account access at home or on-the-go.
There is no tax reporting when transferring funds/assets from one IRA custodian to another IRA of the same type at a different custodian. The IRA owner does not personally receive or control the assets, such as in a distribution, which would trigger a taxable event to report.
There are several reasons to open your self-directed account at Equity Trust Company, even before you have selected an alternative investment.
- If you are transferring cash/assets to your account from another custodian, you should allow time for the resigning custodian to process your request and deliver the account holdings to Equity Trust.
- You have the ability to invest in traditional assets while you are researching other opportunities.
- Once you have selected an alternative investment, you will not have other actions in process that may delay the funding processing.
If you have questions about your account in light of the new rules, please call us at 888.382.4727
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