Retirement savings changes impacted by SECURE Act legislation – what does it mean? President Donald Trump signed into law a new act called the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019.
So what is the SECURE Act? This act aims to improve the nation’s retirement system. Retirement savings and ensuring those funds last throughout your lifetime will be a little easier thanks to this new bill passed by Congress. This SECURE Act retirement bill provides Americans with new saving opportunities and opportunities to strengthen their security. It doesn’t matter how much you have left to reach the retirement age.
The bill provides 30 provisions and it’s the biggest legislative change since the 2006 Pension Protection Act. Read on and find out about some of the retirement savings changes impacted by SECURE Act legislation.
How SECURE Act impacts the retirement plans
A lot of Americans aren’t prepared for their retirement. Many of them don’t save at all and some of them are behind on their retirement contributions. The bill has 30 updates, but here are some of them where people should see the most impact.
Employers were allowed by previous laws to exclude their part-time employees from 401(k) plan eligibility. However, it is going to change according to the new SECURE Act. This will take into effect on January 1, 2021.
Under this legislation, the employer is obligated to allow a part-time employee to participate in its defined contribution plan. An employee must complete either one year of service requirement (with the 1,000-hour rule) or three consecutive years of service where the employee completes at least 500 hours of service.
Age retirement raises for required minimum distributions
People used to be required to start withdrawing from their retirement savings account at the age of 70.5. However, the new act raises the limit to 72. ‘As Americans live longer, an increasing number continue employment beyond traditional retirement age’.
Inherited IRA and 401(k) Rules
Before the SECURE Act, if you inherited an IRA from someone other than your spouse, you were required to take distributions from that account, but you could stretch out those payments over your entire life. Now, non-spousal beneficiaries have to take distributions out of the inherited IRA within 10 years of the death of the original account holder.
There are, of course, certain exemptions to the law. Some beneficiaries, including spouses and minor children, or individuals with chronic illness or disability are exempt from this rule.
The SECURE Act now allows unrelated small employers to offer the “open” 401(k) multiple-employer plans (MEPs)—also referred to as pooled employer plans (PEPs)—thus reducing the costs and administrative duties that each employer would otherwise bear alone.
401(k) statements to include lifetime income stream disclosure
There’s intent behind The SECURE Act that the beneficiaries start thinking about their account balances. The new “lifetime income disclosure” requirements apply to individual account plan benefit statements and the lifetime income disclosure. These must be provided in one benefit statement during each 12- month period.
Use of 529 Plans
The new legislation made certain changes when it comes to the use of 529 plans. The Act has established a benefit frequently sought by parents and grandparents: the ability to use 529 distributions to pay back student loans. That is, owners can withdraw their 529 funds tax-free and make payments against their or their children’s student loan balances after college.
Adoption or childbirth cost withdrawals
The SECURE Act allows Americans who just had a baby or adopted a child to take a withdrawal of up to $5,000 from their retirement accounts, including a 401(k) or IRA, without the typical 10% penalty. That means a couple could take up to $10,000 out penalty-free if they have separate retirement accounts.
These were some of the retirement savings changes impacted by the SECURE Act legislation. Since the new Setting Every Community Up for Retirement Enhancement (SECURE) Act has been passed, it may be a good time for everyone to review their current plans and potentially adjust them to the new provisions.
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