SECURE Act and how it will change your retirement

January 22, 2020

Dear Clients and Friends,

By now most of you have heard about new legislation affecting retirement accounts. Here is a brief overview of the most pertinent provisions of the Act.

What is the SECURE Act?

The SECURE Act stands for: Setting Every Community Up for Retirement Enhancement Act. It was signed into law on December 20, 2019 and is effective January 1, 2020. The bill is designed to make significant changes to the current retirement system structure.  Here is our simplified summary.

•    Extends the beginning date of required minimum distributions (RMD). Under the old law if you had money in a traditional investment retirement account (IRA) or employer-sponsored retirement plan, distributions were required to begin at age 70 1/2. The SECURE Act extends the beginning RMD age to 72. This rule applies to account owners turning 70 1/2 after December 31, 2019. It is not retroactive to those already taking distributions.

•    Additional time to contribute to your IRA. Before the SECURE Act an individual was prohibited from making contributions to a traditional IRA if they were over age 70 ½. After December 31st, 2019, contributions to a traditional IRA can be made at ANY age (with certain restrictions regarding earned income).

•    Alteration of “Stretch” Provision for beneficiaries of retirement accounts. If the account owner dies on or after the required date to begin taking their RMD and the beneficiary of the account is other than a surviving spouse, disabled and chronically ill individual, minor child, or individual no more than ten years younger than the deceased, the entire account balance must be distributed within 10 years.

•    A break for new parents. Parents can withdraw up to $5,000.00 from a retirement account within a year of a child’s birth or adoption without being subject to penalties. Under the old law the above distribution would have resulted in a 10% penalty on the entire amount of the distribution.  Such a distribution is still subject to income tax.

What should we do?

Review your beneficiary designations, contact your retirement plan administrator to update existing plans as necessary, and call us with your questions.

The above are highlights of the SECURE Act and as with most new legislation, questions remain. The Act contains other provisions not universally applicable and thus not described here.  We will of course be communicating with you individually with planning opportunities as they apply to you.

– The Vanderbilt Team

Document dated 1/22/2020