If you’ve been having a hard time saving enough money for retirement, the SECURE Act could help turn that around.
At the very end of 2019, the SECURE Act (Setting Every Community Up for Retirement Enhancement Act) became law. The main focus: making it easier for people to save money for retirement.
The rule changes are designed to help more people save more money for retirement. Anything gives more people access to retirement savings sounds like a good plan. And giving people more flexibility over how long they can save and more time before they have to start taking money out also seems like a good thing.
While the law contains a boatload of long-winded provisions, here are five key points that could really make a difference for retirement savings.
1. You don’t have to stop saving.
Under the old rules, you weren’t allowed to make any more contributions to traditional IRAs once you turned age 70½, even if you were still working.
With the SECURE Act, you can stash cash in your IRA as long as you’re working, no matter how old you are.
Why this matters: People are living longer – and working longer, too. This gives you the chance to reduce your current income tax bill and supersize your retirement nest egg for when you are ready to use it.
Click here to learn more about IRAs and which type is best for you.
And – don’t forget – you can make 2019 IRA contributions through April 15, 2020. Click here to learn how.
2. RMDs start later.
Under the old rules, required minimum distributions (RMDs, money you MUST take out of your retirement accounts) for traditional IRAs and 401(k)s began at age 70½, whether or not you wanted to take them.
The RMD exception: You can delay taking RMDs from your current employer’s 401(k) until you no longer work there.
With the SECURE Act, you can leave your traditional IRA funds in place for an extra 18 months and begin taking your RMDs at age 72 (as long as you turn 70½ after January 1, 2020).
Why this matters: RMDs increase your current taxable income and the taxes you owe. And if you don’t take enough money out, the IRS hits you with a huge tax penalty. This delay offers the double advantage of not spiking your tax bill and giving your money more time to grow.
Pro Tip: Delayed RMDs don’t mean you can’t take out money sooner if you want to… it just means you don’t have to if you don’t want to. You can learn more about RMDs here.
3. Part-time Workers Can Contribute
Under the old rules, employers did not have to offer 401(k) benefits to part-time employees, leaving millions of Americans with no access to employer-based retirement savings plans.
With the SECURE Act, employers are required to offer 401(k) participation to any employee who has worked at least 500 hours a year (that comes out to about 10 hours a week) for 3 years in a row.
Why this matters: Part-time employees and seasonal workers can now take advantage of easy, automated retirement savings through an employer 401(k).
Grad and post-doc students can now – thanks to the SECURE Act – consider fellowships and stipends as “earned income,” giving them the chance to fund retirement accounts.
4. Penalty-free Withdrawals for Child Birth or Adoption Expenses
Under the old rules, you could pull money from your retirement accounts early to cover birth or adoption expenses, but you’d get hit with a 10% early withdrawal penalty.
With the SECURE Act, you can withdraw up to $5,000 without penalty to cover expenses related to the birth or adoption of a child… and put the money back in later. Be aware that you’ll still have to pay regular income taxes on the withdrawal amount.
Pro Tip: Both parents can take advantage of that $5,000 penalty-free withdrawal.
Why this matters: New parents can avoid going into debt due to high medical or adoption costs and avoid expensive tax penalties ($500 penalty on a $5,000 withdrawal).
5. Lifetime Income Information
Under the old rules, most of us had absolutely no idea how much money we could pull out every month once we retired.
With the SECURE Act, plan administrators must provide annual lifetime income disclosure statements. These reports that spell out the amount of monthly money you could get if you used your 401(k) account to buy an annuity (a financial product that pays out a regular income stream).
Why this matters: These statements will give you a basic idea of the monthly retirement payout you can expect, and how long your money might last. This can help you and your financial advisor realistically plan your retirement budget.
Unsure how much money you’ll need to retire? Read this.
Boost Your Retirement Savings Today
Time is your best friend when it comes to retirement savings – and you’ll never have more than you do right now. The longer your money has to grow, the more money you’ll end up with. That means more financial security and the freedom to stop working whenever you’re ready.
You’ll find dozens of articles about the best ways to build up your retirement savings here.
And if you want some help sorting it all out, contact me and together we’ll figure out your best plan.