Get the facts about the SECURE Act from Burke & Schindler
Read on to learn how the SECURE Act will affect you and your employees’ retirement.
In December of 2019, the SECURE Act (Setting Every Community Up for Retirement Enhancement) was signed into law. As part of the government spending bill, this important legislation will affect most retirement savers and future retirees.
The law is intended to strengthen retirement security for working Americans and small businesses, which includes:
INCREASING THE REQUIRED MINIMUM DISTRIBUTION AGE
Prior to the SECURE ACT, Americans who were born before June 30, 1949, with a 401(k) or IRA balance were required to withdraw a Required Minimum Distribution (RMD). This was based on life expectancies calculated in the early 1960’s and had not been updated since that time.
The SECURE Act raises the age to begin taking an RMD to age 72. This means, Americans who were born after June 30, 1949, will not need to take an RMD until they turn age 72. Current Americans who turn 72 in 2022 must take their first RMD by April 1, 2023. The second RMD will need to be taken by December 31, 2020, and every consecutive December 31st after that.
INCREASING THE CONTRIBUTION AGE FOR IRAS
Since most Americans are living longer and an increasing number are continuing to work beyond the traditional retirement age of 65, the bill eliminates the maximum age for traditional IRA contributions, which was previously capped at age 70½.
Prior to the SECURE Act, non-spousal beneficiaries who had inherited accounts were able to withdraw the RMDs for the span of their lives. This reduced the amount of the distribution they were required to take.
With this new law, beneficiaries are required to withdraw all assets of the inherited account within 10 years of the death of the account holder. During the ten years, they can also choose whether to withdrawal the money in installments or a lump sum. This could potentially increase the tax burden on some beneficiaries—especially if they are in their peak earning years.
ANNUITIES IN 401(K) PLANS
The SECURE Act allows more employers to offer annuities as investment options within 401(k) plans. Annuities provide a guaranteed income over the course of a retiree’s lifetime by offering a steady stream of income for the long-term. This could be beneficial as many Americans are living longer years into retirement. However, since annuities are complex products, making a wrong choice can be detrimental to the retiree’s investment portfolio.
The SECURE Act provides tax credits for employers who automatically enroll employees in their retirement plans. On top of the start-up credit they already receive, the added tax-credit will offset the cost of starting a 401(k) or Simple IRA plan with auto-enrollment.
LONG-TERM PART-TIME WORKERS
Previously, employers were not required to allow employees who work less than 1,000 hours per year to participate in their 401(k) plan. The SECURE Act increases the availability of a retirement savings plan for part-time employees by dropping the threshold for eligibility to one year with at least 1,000 hours worked during that year, or three consecutive years of at least 500 hours worked per year.
MULTIPLE EMPLOYER PLANS (MEPS) FOR SMALL BUSINESS
Many small employers do not offer a qualified retirement plan because of the cost associated with establishing a plan. The SECURE Act increases access to Multiple Employer Plans (or MEPs) for small employers. MEPs reduce the cost of adopting a plan for small employers, which will hopefully increase the access to retirement plans for more American workers.
Let Burke & Schindler help navigate your retirement and savings.
At Burke & Schindler, our business advisors have with tax and retirement management experience to help you navigate the SECURE Act.
Our business advisors have a wealth of experience in ensuring businesses like yours reach their potential and ensure you and your employees are prepared for retirement when the time comes. We can review past tax returns and your current portfolio to ensure you’re investing enough money in your retirement accounts today for peace of mind tomorrow.
We’re dedicated to giving your business the personalized attention it deserves and committed to seeing your business reach its goals. When you succeed, we succeed.
Contact us today to schedule an appointment, discuss the SECURE Act as well as your financial liabilities and future retirement planning.
CALL (513) 455-8200