Congress passes the SECURE Act, effective 1/1/2020

The SECURE Act, which stands for “Setting Every Community Up for Retirement Enhancement”, was signed by the President this week and put into effect as of 1/1/2020.  There are some significant changes that impact all of us which we have laid out in the below 8 key themes.  There are of course nuances to all of these items, and if you are concerned please reach out to the Bridge Advisory team so we can discuss how this will impact your specific situation.  Happy New Year everyone!

• Age Limit Removed For IRA Contributions: There is no longer an age cap on contributions to a traditional IRA as long as you are working and have earned income. Traditional IRAs will now be aligned with Roth IRAs.
• Required Minimum Distribution (RMD) Age Extended to 72: The SECURE Act delays RMDs from retirement accounts until age 72 (up from 70½). This applies to all those who are not currently in RMD status. Anyone who is over 70½ as of 1/1/2020 must continue taking RMDs.
• Penalty-Free Withdrawals For New Parents: The SECURE Act now allows new parents to take penalty-free distributions from their retirement plans within a year of the birth of a child or adoption to cover related expenses, up to $5,000.
• Student Loan Repayment Through 529 Savings Plans: Individuals can also withdraw up to $10,000 per year from 529 savings plans to make student loan payments.
• Retirement Plan Conversion To Lifetime Annuity: Retirement accounts could be converted to a lifetime annuity. The SECURE Act creates a safe harbor for employers to offer annuities in their 401(k).
• Lifetime Income Disclosure For Defined Contribution Plans: Employers are now required to disclose to employees the amount of sustainable monthly income their balance could support in their 401(k) statements.
• Increased Access To Retirement Plans For Small Business Employees: The SECURE Act expands the ability for small businesses to offer multiple employer plans. It also allows small-business employers to join with other employers to set up and offer 401(k) plans with fewer liability concerns and less cost. This is helpful to make retirement savings more economical for small businesses, which is especially impactful for compliance with the coming requirement for all employers with 5 or more employees to offer retirement plans by the year 2022.
• Elimination Of The Stretch IRA: A key change in the Act is the elimination of the “stretch” IRA from inherited retirement accounts. This means that a non-spouse beneficiary can no longer stretch the distributions over his or her lifetime. Instead, all retirement assets must be distributed out of the account within 10 years of the account owner’s death. There are some exceptions for a surviving spouse, minor children, chronically ill, disabled, and anyone not more than 10 years younger than the account owner. This new rule applies to all retirement accounts inherited on or after January 1, 2020.