Secure Act (part 1)

President Trump signed the SECURE Act the end of 2019 as part of the government’s spending bill and it will inevitably affect most retirement savers, for better or worse.

The SECURE legislation — which stands for “Setting Every Community Up for Retirement Enhancement” — puts into place numerous provisions intended to strengthen retirement security across the country.

SECURE contains 29 separate provisions, but here are 3 that are the most relevant for retirement planning. There are many other provisions aimed to benefit business owners, make retirement savings easier for more people and allow for additional flexibility.

1. SECURE changes the age of initiation for RMDs from 70 ½ to 72.

This only applies to folks who reach 70 1/2 after 2019. So, if you turned 70 1/2 in 2019 or earlier, you’re unaffected. But if you will turn 70 1/2 in 2020 or later, you won’t need to start taking RMDs until after attaining the age 72.

2. SECURE allows contributions to traditional IRAs after age 70½.

No age restrictions to ROTH under the old or new law.  While the age limit for making traditional IRA contributions is eliminated, earned income is still required to make an IRA, Roth IRA or spousal IRA contribution

3. SECURE eliminates ‘Stretch’ IRAs and now mandates that inherited IRAs with non-spouse beneficiaries must be withdrawn within 10 years with a few exceptions. More on this to come!

Here are the most relevant provisions for business owners for their employee retirement plans.

1. SECURE will make it easier for small businesses to set up 401(k)s by increasing the cap under which they can automatically enroll workers in “safe harbor” retirement plans, from 10% of wages to 15%.
2. SECURE will provide a maximum tax credit of $500 per year to employers who create a 401(k) or SIMPLE IRA plan with automatic enrollment.
3. SECURE will enable businesses to sign up part-time employees who work either 1,000 hours throughout the year or have three consecutive years with 500 hours of service.

We will cover more in the upcoming weeks, covering the positives and negative effects of this especially as it relates to your Business Plan for Life.