The Setting Every Community Up for Retirement (SECURE) ACT – a topic that Jeff Collins introduced in this space when it was only proposed legislation – was recently passed by Congress (with broad bipartisan support, no less), marking a significant victory for anyone actively planning for their non-working years. Put simply, the Act is the kind of retirement reform that may come along only once in a generation.
However, with the summary of the law being six pages and the entirety of its text more than 120, it is likely that many people who will be impacted will not take the time to read its provisions in full. So here is a non-comprehensive rundown, in (estimated) order of most to least common categories of people who the legislation will affect affected by this legislation.
- IRA owners nearing age 70 ½ or 72: Required minimum distributions are being pushed out until age 72. (Yes, 72 – not some unusual half-year number that is harder to remember.) Also, IRA owners may now be able to contribute beyond age 70 ½, if otherwise eligible.
- Grantors and beneficiaries of 529 plans: Expansion of costs covered to include apprenticeships, limited student loan repayments, homeschooling, and private or religious schools.
- Part-time workers who WANT to be eligible for a 401(k) plan: If you work less than 1,000 hours per year, you may now be eligible for your employer’s retirement plan.
- 401(k) participants giving birth or adopting: “Qualified birth or adoption distributions” are now penalty-free.
- 401(k)/retirement plan sponsors (business owners, CFOs and controllers, HR professionals): There are simply too many changes to address in this space in a concise manner. Check with your advisor, TPA, CPA and attorney. A significant provision for smaller businesses: They are now eligible to receive up to $500 in tax credit per year for three years, for plans that include or add auto-enrollment, and are eligible for an increase of prior tax credit for plan start-up.
- Beneficiaries of NON-spousal beneficiary IRAs (i.e., “stretch IRAs”): Distributions can no longer be “stretched” any longer than 10 years. Possible implications for Special Needs individuals who benefit from a trust that was set up as the beneficiary of an IRA.
- 401(k) participants who want an annuity through their plan OR Insurance agents: (I will write a follow-up article on this topic, but here are a couple of quick facts…) The plan sponsor receives a fiduciary exemption when selecting annuity options for placement into 401(k) plans. Annuities have some portability features. Essentially, people are likely to see more annuities included in retirement plans.
- 401(k) participants taking loans through credit cards: This practice has been disallowed.
- Community newspapers with pension (i.e., defined benefit) retirement plans: With regard to pension-funding relief, the amortization period changed from seven to 30 years, reducing annual contributions.
- Home healthcare workers receiving “difficulty of care” payments: These payments now qualify as income eligible for determining retirement contribution limitations.
Again, this list comprises only key components of the Act’s framework, and is by no means meant to be viewed as a comprehensive or exhaustive examination of its many facets.
If you’d like to discuss or have questions about how you might be impacted, please don’t hesitate to send me an email or give me a call at (608) 835-1245.