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SECURE Act & Your Retirement

January 1, 2020

If you were busy with the holiday hustle-and-bustle, you may have missed some of the details of the SECURE Act.  Your retirement planning process will likely need to be reviewed because of the SECURE, or Setting Every Community Up for Retirement Enhancement, Act. This act changes age restrictions on when you can contribute to a traditional IRA, when you will be required to take minimum distributions and how your legacy funds contained in a 401(k) plan can be dispersed by your loved ones.

Required Minimum Dispersal Ages


If you plan to keep working or have access to passive income that will support you into your 70s, then the requirement that you must start pulling money out of your 401(k) accounts at 70.5 can seem excessive. The SECURE Act allows required minimum dispersals to be pushed back to the age of 72. This will allow your monies to continue to grow, provides you with a better chance to pass on the bulk of your 401(k) and lessens your tax burden if you’re still working.

Promoting Automatic Enrollment


Inertia can be a common driver for many less experienced investors. Small business owners will receive a $500 tax credit for starting a retirement investment plan for their employees if they create the plan with an automatic enrollment “switch” to set up a default investing plan for their employees. To get in the plan, employees need do nothing, but they must opt out to avoid participation.

Directing Your Designations


If you plan to pass on your retirement savings, you can set up a conduit trust that will omit required minimum distributions until 10 years after your death. Often, legacy retirement accounts are liquidated quickly and may not be put to the purposes that you intend. You can limit this rapid distribution and promote investment growth and a larger payout over time by the way you set up the legacy distributions.

Keep Saving


Prior regulations barred anyone over the age of 70.5 from participating in an IRA, though a Roth IRA could still be used. The SECURE Act removes this restriction, so if you plan to keep working and keep earning, you can still enjoy the tax benefits of a traditional IRA, continue with your investing goals and keep earning.

Invest in Your Loved Ones


In addition to setting up educational trusts for children and grandchildren, the SECURE Act provides an expansion of 529 plans to provide up to $10,000 for descendants and their siblings for the repayment of student loans. While paying tuition up-front may seem a more logical decisions, deferring up to the $10,000 limit will allow the monies in the 529 plan to grow over the course of the education path. As federal student loan plans require the government to pay interest on the loan while the student is in school, this $10,000 expansion can be a significant tuition savings.

No matter how long you plan to work, setting up your retirement accounts with an eye toward tax savings and legacy planning needs to start early. Confirming that you’ve taken the steps to avoid penalties of required minimum distributions is also critical in the retirement planning process.

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