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A Look at the SECURE Act's Impact on Retirement

The SECURE Act — the first meaningful update to the law governing the retirement system in nearly 15 years — has created important changes for retirement planning. See how the new law will affect the ways you prepare yourself financially for your golden years.

The Setting Every Community Up for Retirement Enhancement Act, better known as the SECURE Act, was signed into law in late 2019. The bill includes provisions aimed at increasing access to tax-advantaged retirement accounts.

NO MORE STRETCH PROVISION

One of the most significant changes is the elimination of the “stretch” provision for most non-spouse beneficiaries of inherited IRAs, who will now have only 10 years to close the account rather than “stretching” it across a lifetime. However, the law includes exemptions to the 10-year rule for what are now called “Eligible Designated Beneficiaries.” Eligible Designated Beneficiaries are:

• Surviving spouses
• Minor children, up to majority – but not grandchildren
• Disabled individuals – under the IRS rules
• Chronically ill individuals
• Individuals not more than 10 years younger (generally, siblings around the same age)


NO MORE AGE RESTRICTION ON TRADITIONAL IRA CONTRIBUTIONS 

Before the SECURE Act, you could not make contributions to a traditional IRA for the year during which you reached age 70 ½ and beyond. The SECURE Act repeals that age restriction. So, for tax years beginning in 2020 and beyond, you can make contributions after reaching age 70 ½. (There’s no age restriction on Roth IRA contributions, and the SECURE Act does not change that.)


REQUIRED MINIMUM DISTRIBUTIONS TO BEGIN AT 72

To account for the increasing longevity of retirees, the Required Minimum Distributions (RMDs) now begin at age 72, rather than age 70 ½. This new rule is effective immediately. Anyone turning 70 ½ in 2020 will not be required to take a distribution until the year they reach age 72. Those who turned 70 ½ in 2019 must follow the old rules and will still be required to take an RMD in 2020.


ADDITIONAL ITEMS

The SECURE Act allows Americans who just had a baby or adopted a child to withdraw up to $5,000 from their retirement accounts, including a 401(k) or IRA, without the typical 10 percent penalty.

The SECURE Act also allows a lifetime limit $10,000 from a 529 plan to be used to repay the beneficiary’s student loans, including federal and most private loans, without penalty or tax consequences. An additional $10,000 can be used to repay student loans held by each of the beneficiary’s siblings. Prior to these changes, any withdrawals for the purpose of student loan payments were subject to income taxes and other penalties. The new 529 plan rules begin retroactively, starting in 2019.

The SECURE Act has wide-ranging effects on retirement planning. Contact a TCU Investment Representative to learn more about how this legislation affects you: tcunet.com/Plan/Investments/Investment-Team