EASTON — President Donald Trump, on Friday, Dec. 20, signed into law the SECURE Act, a retirement savings game-changer that attempts to address the student debt crisis and acknowledge an aging workforce.
The Setting Every Community Up for Retirement Enhancement Act of 2019, which went into effect on Jan. 1, 2020, has a multitude of implications for retirement savers and beneficiaries of all ages.
But in Talbot County, where 29.2% of residents are older than 65, the following provisions warrant attention:
• SECURE increases the initial age for Required Minimum Distributions, meaning the age at which IRA account holders are legally mandated to begin making annual withdrawals from their retirement savings fund. The provision increases the age from 70½ to 72 — allowing more time for IRAs to grow through accrued interest. As people remain in the workforce longer and the average human life expectancy increases, the ability to leave an IRA untouched for more time likely will prove widely beneficial. In a reference to the provision on its blog, Cvach Financial Services in Centreville advised the change does not affect those who already are of distribution age. “If you are now 70½ or older, this change does not affect your scheduled RMDs. Only those who turn 70½ in 2020 or later are subject to the new rule,” the company wrote.
• Related to the above provision, SECURE repeals the maximum age at which IRA account owners no longer are allowed to contribute money to their retirement fund. Under previous legislation, people were required to stop contributing to their retirement savings accounts at age 70½. Edward Jones, a financial services company with a Denton location, provided The Star Democrat with a document outlining what it called the “five most impactful changes” initiated by the SECURE Act. The company pointed to this provision as being among the most noteworthy for its clients.
• While SECURE offers retirement savers more time to save and contribute to their accounts, a provision was needed to ensure the government still could benefit through valuable tax revenue. Cue the elimination of “stretch” IRAs. Under previous law, “stretch” IRAs allowed non-spouse beneficiaries — children or grandchildren — to inherit an IRA under tax-deferred status. Now, except in specific cases, the beneficiary must dip into the funds within 10 years of the account holder’s death — potentially placing the beneficiary into a higher tax bracket. Although the provision went into effect on the first day of 2020, Edward Jones’ document stated family members whose inherited IRAs have a 2019 death date or prior “retain the ability to stretch the distribution over the beneficiary’s lifetime, even if the account is created in 2020.”
The following are a few other of-note provisions, which primarily concern part-time employees, debt-ridden students and new parents:
• SECURE allows long-term, part-time workers to participate in retirement savings plans. Under previous law, employers were allowed to exclude part-time workers — employees who work less than 30 hours per week — from participating in savings plans to which the employer contributes. This provision is relevant and timely because it extends coverage to more workers in an increasing part-time, independent contractor and gig-based workforce.
• As Americans’ workplace demands for government-mandated paid family leave increase, SECURE offers a provision that takes a step toward addressing the needs of working new parents. Under newly enacted law, SECURE allows new parents, birth or adoptive, to withdraw up to $5,000 without penalty from retirement savings accounts in order to offset qualified delivery or adoption costs.
• Under SECURE’s provisions, graduated students with debt can dip into their 529 education savings accounts and withdraw up to $10,000 to repay student loans, or to offset the costs associated with registered apprenticeships, homeschooling and private schools. This provision attempts to address a mounting nationwide student debt crisis and fend off any potentially imminent economic consequences of a generation in crippling debt. This provision also was included in an Edward Jones-issued document summarizing the SECURE Act’s five most important changes.
The SECURE Act received overwhelming bi-partisan support in Congress, passing the through the U.S. House of Representatives in a 417-3 vote in May 2019, and later through the Senate in a 71-23 vote.