Major changes are coming to your retirement plans in 2020. SECURE Act was signed into law by President Trump on December 20, 2019. SECURE is an acronym for “Setting Every Community Up for Retirement Enhancement”.
Here are the key provisions of the changes to retirement plans.
Age for Required Minimum Distributions Increases to 72
Individuals now need to start taking required minimum distributions (RMD) at 72. Previously, the age limit was 70 1/2.
Inherited Retirement Accounts Must Be Distributed in 10 years
Current law allows inherited retirement accounts to be distributed over the beneficiary’s lifetime (sometimes called the “Stretch IRA”). But the new law states that the inherited assets must be distributed within 10 years.
This change is likely to have a huge impact on estate and tax planning. Beneficiaries will receive big payments over 10 years and lose out on the potential to grow the inherited accounts over their lifetimes.
Penalty-Free Withdrawal For Expenses Related To Birth/Adoption of Child
New law allows new parents to withdraw $5,000 from a 401(k) or an IRA to pay for expenses related to the birth or adoption of a child.
Though it may help some people, I am not a big fan of withdrawing funds from retirement plans early. Most people are better off leaving their money in retirement plans allowing their money to grow and finding other sources for childbirth-related expenses.
Annuities in 401(k) plans
You will start to see annuities in 401(l) plans. The new law lowers some of the barriers that prevented employer-plans from offering annuities. This will allow employees to convert their assets in 401(k) into income streams.
401(k) for Part-time Workers
Part-time workers are now eligible for 401(k). The new law states that employees who worked at least 500 hours per year for three consecutive years are eligible for a 401(k) plan.
Contribution to Traditional IRA After 70 1/2
If you have earned income beyond 70 1/2 years, you can contribute to a Traditional IRA. This is currently prohibited for Traditional IRA though it’s allowed for Roth IRAs. There are no age limits for Roth IRA contributions.
Lifetime Income Disclosures
The law mandates the Labor Department to provide disclosures to plan participants showing the project monthly income in retirement based on their current assets. The rules will take a couple of years to take effect.
This report will allow people to see whether they are saving enough to live off their retirement accounts without having to run complex calculations.
Bottom Line
As you save for retirement, it is important to stay on top of the changes. When rules are changed, employers don’t implement all the changes right away. Look for guidance from your employers informing you of changes, so you can plan, and grow your retirement nest egg.