Wealth

Congress Just Passed the Biggest Bill in a Decade – The SECURE Act: 7 Things You Need to Know

On December 19th, the Senate passed
the most sweeping retirement bill since the Pension Protection Act of 2006. The
SECURE Act, whose progress had stalled until lawmakers tacked it onto a
spending bill to keep the country running, aims to make saving easier amongst a
bevy of changing rules. The House already passed the legislation, and President
Donald Trump is expected to sign the bill into law. So, how does that impact
you, your money, and how you will be able to save money for the future?  Does it mean you will pay more taxes?  Here are seven things you need to know about
the Secure Act.

(some excerpts are from Yahoo Finance)

SECURE Act #1:  RMD’s Are Changing

Starting January 1,
2020, the new bill pushes the age at which you need to start withdrawing money
from your traditional retirement accounts from age 70½ to age 72. These
required minimum distributions, as they’re called, are Uncle Sam’s way of
finally getting his share of your retirement savings that have grown tax-free
for decades. Many retirees need the money from their retirement accounts to
live on, so they’re already withdrawing a portion and paying taxes on it before
the government requires them to do so. But those who don’t need the money and
aren’t yet 70½ will now have more time before that requirement kicks in.

Those who are
currently 70½ or older should not interrupt their RMDs but proceed with them as
scheduled under current rules, Townsend says. Those who turn 70½ on or after
January 1, 2020, are subject to the new rules and will have an extra year and a
half before they need to start withdrawals.

SECURE Act #2: Seniors….
Keep on Saving

The law will allow you
to contribute to your traditional IRA in the year you turn 70½ and beyond,
provided you have earned income. This is currently prohibited (although there’s
no age cap on contributing to a Roth IRA).

Working past the
traditional retirement age of 65 is a great way to shore up your retirement
savings. More baby boomers will likely do this if they can, so it makes sense
to allow them to continue to save in their traditional IRA and enjoy the tax
deduction. “That’s a no-brainer if you’re still working,” Hubble says.

SECURE Act #3: You
REALLY Need to Plan Your Inheritance Money Better

The bill essentially
eliminates the “stretch IRA,” an estate planning method that allows IRA
beneficiaries to stretch their distributions from their inherited account — and
the required tax payments on them — based on their life expectancy. If you
named your grandchild as your beneficiary, for example, most of your account
can stay invested for decades past your death and your grandchild could
continue to reap the tax benefits. But under the new law, most beneficiaries
will have to withdraw all the distributions from their inherited account and
pay taxes on it within ten years. Exceptions are made for certain
beneficiaries, including spouses and those who are chronically ill or have a
disability.

This provision is not
retroactive and will not affect those who have already inherited an IRA, but it
will apply to those who inherit them starting on January 1, 2020 and may affect
the estate planning of those planning to pass on an IRA to a non-spouse.

SECURE Act #4: Annuities
Coming to a 401(K) Near You Soon…. So Sorry Ken Fisher!!!

It’s pretty straightforward to save
for retirement in a 401(k), but it’s another matter to calculate how to turn
your life savings into a sustainable income stream once you’ve retired.
Annuities are insurance products that help with this
complicated task by turning a lump sum into lifetime guaranteed income.
However, many companies have hesitated to offer them in their 401(k) plan for
fear that they could be held liable if something bad happens with the insurer.
The bill gives increased legal cover to employers and experts expect it to open
the way for more annuity options in 401(k) plans.

SECURE Act #5: Part-Time
Workers Can Jump for Joy

Part-time workers need
to save for retirement, too. However, employees who haven’t worked at least
1,000 hours during the year typically aren’t allowed to participate in their
employer’s 401(k) plan.

That will change under
the SECURE Act. Once enacted, it will guarantee 401(k) plan eligibility for
employees who have worked at least 500 hours per year for at least three
consecutive years. The part-timer will also have to be 21 years old by the end
of the three-year period. The rule won’t apply to collectively bargained
employees, though.

SECURE Act #6: Penalty-Free
Withdrawals From an IRA If You Have a New Child

Congratulations if you
have a new baby on the way or if you are about to adopt a child! Right after
you pass out the cigars, you’ll probably start worrying about how you’re going
to pay for the birthing or adoption costs. If you have a 401(k), IRA or another
retirement account, the SECURE Act will let you take out up to $5,000 following
the birth or adoption of a child without paying the usual 10% early-withdrawal
penalty. You’ll still owe income tax on the distribution, though, unless you
repay the funds. If you’re married, each spouse will be able to withdraw $5,000
from his or her own account, penalty-free. Although using retirement funds for
childbirth or adoption expenses will obviously reduce the amount of money
available in retirement, some lawmakers believe this SECURE Act provisions will
encourage younger workers to start funding 401(k)s and IRAs earlier.

SECURE Act #7: Law,
Grad, and Doctor Students Get a Big Win

Contributions to a
retirement account generally can’t exceed the amount of your compensation. So,
if you receive no compensation, you generally can’t make retirement fund
contributions. Under current law, graduate and post-doctoral students often
receive stipends or similar payments that aren’t treated as compensation and,
therefore, can’t provide the basis for a retirement plan contribution. Similar
rules and results apply to “difficulty of care” payments that
foster-care providers receive through state programs to care for disabled
people in the caregiver’s home.
Once the SECURE Act becomes
law, amounts paid to aid the pursuit of graduate or post-doctoral study or
research (such as a fellowship, stipend or similar amount) will be treated as
compensation for purposes of making IRA contributions. This will allow affected
students to begin saving for retirement sooner. Similarly, “difficulty of care”
payments to foster-care providers will also be considered compensation when it
comes to 401(k) and IRA contribution requirements.

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