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April 1, 2020
The Setting Every Community Up for Retirement Enhancement (SECURE) Act has brought in good news to the large number of Americans who are concerned about securing their financial future post-retirement by saving enough money. The SECURE Law, signed by US President Donald Trump on 20 December 2019, became an Act with effect from 1 January 2020.
The Act includes several reforms that not only make retirement savings for Americans easier but also more accessible. The SECURE Act enhances access to Individual Retirement Accounts (IRA) as well as workplace retirement plan accounts, such as 401(k)s. It also entails potential tax benefits for longer periods. At the same time, the Act also offers incentives for business owners to assist their employees to save as well as invest more. The SECURE Act has brought in significant changes to the retirement saving rules, and it will impact Americans nearing retirement or has retired, small business owners and employees. At the same time, the Act will have a major impact on real estate investment.
The SECURE Act mainly focuses on three areas:
The SECURE Act will benefit you mainly in the following six ways:
Before the enactment of the Act, the Required Minimum Distribution (RMD) start date was set at the 70½ age. That means you were required to withdraw the money you have in your traditional IRA or an employer-sponsored retirement plan once your age strikes 70½. But the SECURE Act extends the RMD start date to 72 years, giving you extra time to allow your IRA and 401(k) to increase without decreasing by distributions and taxes.
It is due to the new Act, you get the opportunity to do Roth IRA conversions refraining from bothering about the corresponding impacts of distributions for the additional two years as RMDs start at the age 72, unlike at 70½ earlier. Unlike a traditional IRA, a Roth IRA enables you tax-free withdrawals as long as you conform to certain requirements. Besides, there will be no RMDs with Roth IRA in your entire lifetime. The main motive associated with a Roth conversion is to change taxable money in an IRA into a Roth IRA at lower prevailing taxes than the higher taxes you expect for the future.
The SECURE Act has remarkably increased the opportunities for retirement savings in many ways. With the Act, you can contribute to a tax-deductible IRA even after you hit the 70½ age and that was not possible before the enactment of the Act. It means that if you continue working in your 70s, you can deposit money in a deductible IRA. The Act proves to be a boon for retirees today who prefer to continue working as the SECURE Act provides additional flexibility in retirement saving.
With the SECURE Act, business owners will find it a lot easier to formulate retirement plans for their employees. The Act will let them offer Multiple Employer Plans (MEP). Moreover, the Act will allow even part-time employees through employer-sponsored retirement plans, starting in 2021.
The SECURE Act also has provisions that push employers with retirement savings plans to allow their employees to convert their retirement savings into guaranteed lifetime income. The conversion will be attained through annuities. The Act also has a provision to protect employers from being sued if the insurers they choose for making annuity payments do not pay the claims in the future.
If a traditional IRA, before the Act, was left to a beneficiary, he had the freedom to extend the RMD over his life expectancy and in that way he can stretch out the tax benefits of the IRA. But the new Act has restricted that privilege. The SECURE Act mandates the IRA beneficiaries to completely distribute their inherited IRA within 10 years of the death of the owner.
The SECURE Act has removed the “stretch” provisions for IRA beneficiaries and contribution plans, like 401(k).
So, it has now become very important to review the designations of your beneficiaries of your IRA to ensure that they conform to the new beneficiary rules.
If you have a trust as a beneficiary of your IRA or employer-sponsored retirement plan, like 401(k), you should immediately review the associated terms and conditions to figure out if those align with your plan. As the SECURE Act mandates that the entire money in IRA has to be withdrawn within 10 years after the death of the owner, the beneficiary trusts will not be able to stretch out the tax benefits of the inherited IRA.
Before the SECURE Act, many beneficiary trusts of IRA and 401(k) utilized the “pass-through” feature to extend the tax benefits of the inherited IRA. And the trusts provided access to the heir to the only RMD due each year.
Bear in mind that the SECURE Act also calls for careful planning. So, you should avoid taking independent decisions on IRA investments and instead speak to a financial planner, such as NuView Trust for self-directed retirement account planning. NuView Trust acts as a trusted financial advisor to help you to attain your financial goals concerning your retirement savings plan.