The SECURE Act
In recent news you may have heard about The SECURE Act. This stands for Setting Every Community Up for Retirement Enhancement Act. It’s a large act that could drastically impact retirement plan legislation. In the past, people have had access to pension plans. As most of you know, that access is going away for most Americans causing them to have to save for retirement on their through own in ways such as 401(k)s and IRAs. There are a lot of people that feel as though this system is flawed. This is evidence in that fact that over 25% of working Americans have no money saved for retirement. The SECURE Act is a bill that has already passed the House of Representatives with an overwhelming majority of votes.
High-Level Overview
We wanted to give a high-level overview of several key points the act addresses. The first is that it will extend the Required Minimum Distribution (RMD) age to 72. The current age for this is 70 ½ years old. It would give you another 1 ½ years before you have to start pulling money out of your IRA and 401(k) investment accounts. It would also eliminate the age limit on IRA contributions which could be significant if, for example, you are working into your 70’s. The act would also allow 401(k) access to part-time employees. Right now, a lot of people have to work a certain number of hours a year to participate in their employers’ 401(k) plan. It also expands on the penalty free withdrawals from IRAs to include the birth of a child or adoption of a child.
Expansion and Options
Annuity information and options within 401(k)s would be expanded. This will give people a better understanding of how the savings they have accumulated over their working career would actually translate into a stream of income over the rest of their life. It will also add an auto enrollment option enhancement in 401(k) plans. This will make it easier for people to opt-in to 401(k) plans automatically. The act would incentivize small businesses in the form of tax credits to set up retirement savings plans.
Your Financial Plan
One of the final provisions and something that is important for financial planning is that it would eliminate the stretch IRA provisions for inherited IRAs. If you inherit an IRA as a beneficiary of the account you typically have to take distributions over your life expectancy. This would reduce that to 10 years and could have a large impact, depending on the size of the account, to your financial plan.
Recap
This has been a high-level overview and we will go over specific topics in more depth as they become relevant and as the bill progresses in the Senate.
Jay McGowan, CFP®, CPA, PFS
Senior Vice President
Director of Financial Planning
Email Jay McGowan Here
Fi Plan Partners is an independent investment firm in Birmingham, AL, serving clients across the nation through financial planning, wealth management and business consulting. Fi Plan Partners creates strategies in the best interest of their clients using both fee based investing and transactional investing.
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