As we first discussed back in August of 2019, the Setting Every Community Up For Retirement Enhancement (SECURE) Act shows that our government is rethinking what retirement is going to look like for baby boomers and beyond. Your financial plan will need to keep pace with a longer, healthier, more active retirement. And as certain benefits like pensions and employer-match 401(k)s continue to disappear, your children and grandchildren are going to have to take more personal responsibility for their own retirement planning.
Now that the SECURE Act has become law, it’s time for the follow-up we promised. Here are the key themes and specific provisions in the SECURE Act that my Keen Wealth team is studying right now:
Work longer, save longer
The SECURE Act has raised the age at which folks have to start taking required minimum distributions (RMDs) from 70 ½ to 72. You’re also now allowed to keep making IRA contributions past age 70 ½ as long as you’re still working.
These two changes are the government’s way of acknowledging that many seniors are continuing to work well beyond the “traditional” retirement age of 65. Bumping up the RMD age gives seniors a slightly longer opportunity to let their investments grow. And now that you can keep contributing to your IRA as long as you’re working, you might have a couple extra years to max out your larger “catch-up” contributions.
It’s important to note that if you turned 70 ½ in 2019, these changes might not apply to you. Talk to your fiduciary advisor and tax professional about any potential changes to your 2020 RMDs.
New rules for a new economy
Part-time employees who work 1,000 hours per year or 500 hours per year for 3 consecutive years for the same company are now eligible to participate in that company’s 401(k) plans. I could see this affecting some seniors who retire early and then take a part-time job. But the largest group of workers this change will affect are younger “gig economy” workers who juggle a few different jobs. If you have any adult children or grandchildren who fit that description, make sure they’re aware of this change.
However, the government is also encouraging young folks who are full-time employees to start saving more, and sooner. That’s why the SECURE Act raises the cap for auto enrollment contributions to employer-sponsored retirement plans from 10% of pay to 15%. The SECURE ACT also allows for portable “lifetime income investment” that workers can roll over from these accounts if they change jobs.
Finally, the government wants more small business owners to provide retirement options for their employees. The SECURE Act makes it easier for small businesses to join group plans – even if they’re not in the same industries – and provides tax credits for owners who do set up plans. Again, these changes probably affect your grandkids more than you. But if you’re thinking about starting your own dream business in retirement the SECURE Act might make it easier to hire some help and provide your employees with a path towards wealth building.
Your money and your family
The SECURE Act allows for a penalty-free early withdrawal of up to $5,000 from a retirement account upon the birth or adoption of a new child. Also, parents and grandparents can now use funds in 529 accounts to pay down up to $10,000 of student loan debt. Baby boomers might not get much use out of these provisions, but they could help your adult children who are just starting their own families.
However, the elimination of “stretch” inherited IRA distributions is something you should definitely discuss with your family, estate planning attorney and fiduciary advisor. Under the SECURE Act, your heirs can no longer take distributions from an inherited IRA over their lifetimes. Instead, they have to finish those distributions within 10 years of the original account holder’s death.
Most of the chatter about the SECURE Act is focused on this point about stretch distributions. And it’s true that there could be some pretty big tax and estate-planning consequences surrounding this change. But I think the larger point of the SECURE Act is that the government is telling folks that traditional retirement is becoming a thing of the past. New workers and soon-to-be retirees alike need to take charge of their financial planning. The sooner you sit down with a fiduciary advisor and start working on a plan, the more secure your retirement is likely to be.
Bill Keen is a CHARTERED RETIREMENT PLANNING COUNSELOR℠ and independent financial advisor with more than 25 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he specializes in providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.
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