Do you feel secure—now that Congress has passed the Secure Act?
We’re talking about the Setting Every Community Up for Retirement Enhancement Act.
(No, we don’t know who comes up with these names either!)
If you read through the provisions of the law, the big take-away is that:
Congress wants Americans to save for retirement.
Law after law over the years has emphasized the desire of Congress for American taxpayers to save for their retirement; they want you to plan to take care of yourself!
On the surface, the provisions of the law don’t seem too complicated, so maybe we won’t have to wait for a lot of guidance from the IRS on how to apply it.
Here are the main bullet points:
- It is now easier for small businesses to implement qualified plans for their employees.
- There is now no age limit on contributing to a deductible traditional IRA.
- The age for beginning Required Minimum Distributions (RMDs) has been moved from 70.5 out to 72.
- The “stretch” provisions related to an inherited IRA are now significantly limited to 10 years.
- The definition of “income” has been expanded so that more people are able to contribute to IRAs.
- The method for taking loans from your 401(k) are now more restricted.
- You can now take funds from your IRA to pay for childbirth and adoption.
- There is now easier access to annuities through your 401(k) plan.
- Long-term part-time workers can now participate in 401(k) plans.
- In regards to Non-Retirement Provisions:
- Funds in your 529 Plans (education savings plans) can now be used to pay up to $10,000 of student loan debt.
- The potentially onerous changes to the Kiddie Tax that were part of the Tax Cuts and Job Act has been repealed.
There is some good, some bad, some very technical, and some that is very straightforward in this law.
As you glance through the bullet points, you may see some things that obviously apply to you in either a positive or a negative way.
As usual with tax law, the Secure Act necessitates and provides plenty of opportunity for planning.
For instance, the huge curtailment of the “stretch IRA” makes inter-generational tax planning with respect to IRAs essential. If you have legacy intentions as regards your IRA, then it will be very important to develop strategies that prevent it from being (with few exceptions) quickly consumed by taxes when your beneficiaries inherit.
With many people continuing to work well into their 70s, the opportunity to continue funding a traditional deductible IRA will be quite beneficial. Retirement planning will need to account for this factor.
The extra 1.5 years that you are allowed to let your IRA funds grow without any mandatory distributions may not sound huge, but in an overall financial plan, the addition may certainly be significant and will require targeted planning.
If you do not have a holistic, integrated financial plan, this new law provides more incentive to get one in place.
If you do have a financial plan, this law provides a reason to thoroughly review it.
Regarding the new provision that considers payment of student loans to be a qualified education expense: be careful!
If you live in a state that allows some kind of deduction or tax benefit related to the contribution to a 529 Plan, then you MUST understand whether that state considers payment of student loans to be a “qualified education expense”. Just because that is the case for federal purposes does NOT necessarily mean that it is the case at the state level. Without understanding this on a state-by-state level, you could make a very expensive and unexpected blunder.
As always, we are here to plan with you—contact us through our website or call 214-761-8304 when you’re ready to chat.