How the SECURE Act impacts your financial plan
The Setting Every Community Up for Retirement Enhancement (SECURE) Act was passed late last year and set in motion real changes for how you will manage their retirement going forward. Here is a break-down of the changes and thoughts for managing the impact:
Required minimum distributions (RMDs) from IRAs, 401(k)s, etc., are no longer required at age 70½, as this has changed to 72.
Inherited (beneficial) IRAs that are established after January 1, 2020, that are also non-spousal, now have a 10-year distribution schedule, instead of the often longer life expectancy schedule. Accounts created before this date will keep the same life expectancy schedule.
IRA contributions after 70½: If you still have some earned income, you can now contribute to your Traditional IRA after age 70 ½ and every year after.
Qualified Charitable Distributions (QCD) from IRAs: You can still make QCDs from your IRA as long as you’re at least 70½, however, some deductibility may be lost if also making IRA contributions in the same year.
529 education savings accounts can now cover the costs related to approved apprenticeships for up to a lifetime amount of $10,000 and also can be used to pay off student loans.
New retirement plans set up by employers may now include annuities that have also been freed from prudent regulation. No longer must there be evidence of financial durability and stability that was required before the Act. This pushes the due diligence to the plan participants who are often forced into these plans due to a lack of options.
The Act also expands participation of employer retirement plans, 401(k)s, by also allowing part-time employees to contribute. There’s also a tax credit available to employers who implement automatic enrollment for their new employees.
Adoption or birth of a child are now allowed to use up to $5,000 (single), $10,000 (couple), from their IRAs without tax penalty; ordinary income tax still applies.
If you’re retired, you may be pleased to see the RMD age requirement increase another year and a half. The flip side to waiting to take your RMD is that you may be taking it when tax rates are higher. This may be due to forcing more out of your IRA over a shorter period or because tax rates increase in the future. If this is a concern, consider a Roth conversion. Unlike IRAs, Roths don’t have an RMD and pass to your beneficiaries tax-free. Inherited Roths to a non-spouse will require that beneficiaries take distributions over 10 years and it still won’t be taxable to them.
At Eureka Wealth Management, I keep my clients informed of how new rules impact retirement and how to best evaluate and manage them. I also do retirement planning, investments, and insurance. Call for a free initial consultation at (760) 537-0791 or online at eurekawealthmanagement.com.