Does the SECURE Act Affect Retirement Planning?
On January 1, 2020, The Setting Every Community Up for Retirement Enhancement (SECURE) Act became law after it was signed by President Donald Trump. This made various changes to long-term retirement savings. This can impact Americans of all ages. Continue reading below to learn more and contact an experienced Alabama estate planning attorney for help preparing your estate.
Required Minimum Distribution Age
In the past, you used to be required to withdraw from your traditional IRA by April 1 the year after you turned 70 ½. The SECURE Act increased the required minimum distribution age from 70 ½ to 72. Moving the age to 72 allows IRA owners to defer paying tax on the funds while they hopefully continue to grow.
Age Limit for IRA Contributions
Under the SECURE Act, the age limit for IRA contributions was removed. Previously, if you had an individual retirement account, you were only able to contribute until you reached 70 ½ years old. Removing this limit allows contributions to be made to an IRA as long as the individual still works.
Inherited Retirement Account Distributions Taken Within 10 Years
Inherited retirement account distributions now must be taken within 10 years. In the past, if you inherited an IRA, you were able to stretch out withdrawals and tax payments on distributions throughout your life. The SECURE Act requires beneficiaries of retirement account owners who die after January 1, 2020 to withdraw assets within 10 years. Exceptions to this can include a surviving spouse, minor children, disabled and chronically ill beneficiaries, and beneficiaries who are up to 10 years younger than the IRA owner.
New Parents Can Take Penalty-Free Withdrawals
The SECURE Act allows new parents to be able to take penalty-free withdrawals. Under certain circumstances, the IRS allows early distributions from some types of retirement accounts to be penalty-free. The new exception added under the act allows a $5,000 withdrawal after the birth or adoption of a child.
Long-Term Part-Time Employees Eligible for 401(k) Plans
Part-time employees used to have to work a minimum of 1000 hours during a 12-month period to contribute to a 401(k). Under the SECURE Act, employees who are 21 years or older and work a minimum of 500 hours in 12-months for three consecutive years can now contribute to a 401(k) plan.
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