The House of Representatives passed the “Setting Every Community Up for Retirement Enhancement” (SECURE) Act with strong bi-partisan support. The Senate needs to pass their own version, which then must be reconciled with the House bill before it reaches President Trump’s desk. If it passes, it could mean big changes to the way you plan and save for retirement. Read on to learn about some of the SECURE Act’s specifics.
Changes to IRAs
Individual Retirement Accounts (IRAs) are a great way to defer taxation and to save for the future. However, IRA owners often experience a big surprise when they turn 70½ and Required Minimum Distributions (RMDs) start. That’s when they’re required to withdraw (and pay taxes on) a certain percentage of their IRA holdings until the account is fully withdrawn.
For anyone who’s concerned about RMDs, the SECURE Act contains a provision that raises the age for RMDs from 70 ½ to 72. This means that you can put off taking RMDs and while still making contributions to your IRA until your 72nd birthday.
While this aspect of the SECURE Act’s content looks favorable for retirees, there is a flipside.
For example, it would make changes as to how IRA owners pass their accounts onto their heirs. Under the bill’s outline, heirs would no longer be able to “stretch” the RMDs from inherited IRAs across their entire lifetime (known as a stretch IRAs) unless they are a spouse or minor child of the deceased. Instead, any inherited IRA would have to be completely withdrawn within 10 years.
401K Plans Expand
Many employers offer 401k plans, and it’s one of many helpful tools employees can use to defer taxes and increase savings for retirement. Employers would be allowed to offer certain types of annuities in their 401k plans. At this point, there have been no specifics given on what exact types of annuities, other than they would be used to provide a steady stream of income throughout retirement.
In addition, small business owners who start their own retirement plans would get tax credits, giving more organizations an incentive to encourage employees to save for retirement.
Good News for Part-Time Workers
As part of the effort to encourage more Americans to invest for their retirement, the SECURE Act includes provisions that would allow some part-time workers to begin participating in their company’s 401k plan. Currently, most part-time employees are excluded but the bill would create a dual eligibility requirement under which employees who have completed one year of service during which they worked more than 1,000 hours could begin contributing to 401k plans, as well as employees who have completed three years of service during which they worked at least 500 hours per year. Some other restrictions would still be enforced but generally, this would open up a larger group of people to reaping the benefits of investing in a 401k plan.
Protect Your Nest Egg
It’s more important than ever to work with a retirement phase specialist – one who can successfully guide your retirement nest egg through these expected legislative changes.
Remember, knowledge is power. Come to a Crash Proof Retirement® Educational Event and get educated. We’d love to see you there. It’s easy. Just visit the Crash Proof Retirement® events page and register for an event near you. We look forward to seeing you!