With all the turmoil that was going on in Washington at the end of 2019, we'll forgive you if you missed out on the important retirement planning legislation that passed at the end of December. The Setting Every Community Up for Retirement Enhancement (SECURE) Act brought some significant changes to how you might save for retirement.  Here a few of the key points of the SECURE Act and how it could impact your retirement plan.

Age changes for the Required Minimum Distribution

Before the SECURE Act, everyone that had an IRA had to begin taking Required Minimum Distributions (RMD) by April 1st of the year after you turned 70 1/2. Starting in 2020, you will not have to take an RMD until you turn age 72. So if you do not need the distributions for living expenses, this will allow for additional investment time with tax-deferred growth.

Age limit changes for IRA contributions

Beginning with the 2020 tax year there will no longer be an age limit on contributing to an IRA as long as you are still working. This means if you and your spouse are still working, you'll be able to contribute up to $7,000 each ($14,000 total) to your IRA. This allows for some great additional savings opportunities as people continue to work long past the previous standard retirement age.

Less time to take Inherited Retirement Account Distributions

Before 2020 someone that inherited an IRA could stretch out the withdrawals and subsequent tax payments over their life. That changes with the SECURE Act rules. Now when a retirement account owner passes away their beneficiaries may be required to take those distributions over only 10 years. This creates a much shorter time to spread out the associated tax obligations. There are exceptions to this part of the SECURE Act, but you'll want to consult your financial advisor and tax professional to possibly reconsider your beneficiary strategy.

Expanded eligibility for 401(k) plans

The SECURE Act also allows more part-time workers to qualify for a 401(k) plan. Starting January 1, 2021, part-time employees that are over age 21 and work 500 hours in 12 months for 3 consecutive years will be eligible to contribute to a 401(k) plan. The previous threshold was 1,000 hours in 12 months.

Withdrawal benefits for new parents

If your family is growing, the SECURE Act allows you to take a $5,000 withdrawal without the usual 10% early withdrawal penalty. This is only allowed during the first year after a birth or adoption. Make sure you remember that the withdrawal will be subject to regular income tax and how a withdrawal will impact your overall investment and savings goals.

As with many pieces of legislation, there are several complexities to consider so you'll want to make sure and discuss these with your financial advisor or tax professional. The team at Viewpoint Financial Network is ready to help assist in integrating this new law into your overall retirement plan. Give us a call today!


This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.