The Secure Act, which stands for Setting Every Community Up For Retirement Enhancement, was signed into law several weeks ago. As with anything that the government does, it’s fair to ask “Is this really going to be a benefit or not.”

Here’s what you need to know about the act:

1) Annuities now available for 401k’s.  With the availability of pensions shrinking across the corporate world, introducing annuities with their lifetime guaranteed income could be a big benefit for those who take advantage of them. This could be really good or really bad. What do I mean by that? If insurance companies design the 401k annuities the right way, lower fees and good income payouts, then workers could really benefit from these, especially those who haven’t saved much for retirement. However, this has the potential to go poorly. If the annuities offered aren’t designed to benefit the individual enough to produce a lifetime income stream, I could see lawsuits start flying and it ends up being a total mess.

2) Age 72 is now the age that you must start taking your required minimum distribution (RMD).  For years, 70 ½ was the age that you were required to take your RMD. This is a welcome change because for years I heard many clients complain that they had to take their RMD even though they didn’t need it or want it. A year and a half isn’t a huge change but at least it delays the withdrawal for a bit longer.

3) No more Stretch IRA’s.  Now this one stings a bit. Under the old rules, if you inherited an IRA as non-spouse, you were able to stretch out the required minimum distributions over your lifetime. For example, if you were 40 years old and inherited an IRA from a deceased parent, you would have been able to stretch the RMD payments out for 40+ years. With the Secure Act, now you must take those RMD’s out within 10 years. This is going to hit some beneficiary’s income brackets very hard if they stand to inherit large IRA’s.

4) You can continue to contribute to your IRA’s after age 70 ½ as long as you are still working.  In the past, you could continue to contribute to your 401k past 70 ½ if you were still working but not your IRA’s. With this change, now traditional IRA’s can be contributed to as long as you continue to work.

5) Now part-time workers who have been with a company for several years can now participant in the company’s 401k plan.  In order to have participated in a company’s 401k plan in the past, you would have had to work 1000 hours a year to qualify. Now part-time employees who work 500 hours each year over 3 consecutive years will be eligible.

6) Small business owners can now join together to offer retirement plans.  The Secure Act will allow unrelated businesses to join together and offer Multiple Employer Plans (MEP). This will allow small business owners the ability to band together and offer retirement plans as a group making it more affordable to them.

7) Small businesses can receive up to a $5000 tax credit for starting a retirement account.  This is designed to encourage small businesses, who have under 100 employees, to start a retirement plan for their business.

8) 529 plans can be used to pay down student debt.  If you still have money remaining in a 529 plan, up to $10,000 can be used to pay off student loan debt.

9) New parents will be allowed to withdraw $5000 each from their retirement accounts.  With the birth or adoption of a new child, new parents can withdraw up to $5,000 each and avoid the 10% withdrawal penalty.

As you can see, most of the changes are positive, with the exception of the changes to the Stretch IRA. What we know is that there are a large number of folks who have zero retirement savings so some of the Secure Act changes will provide for better access to a retirement plan.

Hopefully with better access it will lead to saving more for your future freedom.

Live free my friends,
Eric Gaddy