Today’s retirees are in a difficult situation; pensions are on the decline and most, unlike their parents, are responsible for saving for their retirement on their own. According to CNN, statistics reflect that almost half of all families in the United States have no retirement savings account at all, and many potential retirees believe that they will have to rely on children as a significant income source in retirement. With retirement looming over the heads of many, the government recently passed the Setting Every Community Up for Retirement Enhancement Act (SECURE Act) in hopes alleviating some of the stress associated with planning and saving for retirement.
Here are some of the biggest takeaways from the SECURE Act and how it might impact you and your retirement.
An Increase in the Required Minimum Distribution Ages
The SECURE Act has now pushed the Required Minimum Distribution age from 70 ½ to 72 years old. This means that you now can have an extra 1 ½ years to grow your retirement savings in an IRA or 401k plan. However, it should be noted that it has been mentioned this provision significantly benefits those with large tax-deferred savings by allowing them to grow their money even longer.
Age Limitation Removal on IRA Contributions
Previous age restrictions that discouraged and inhibited people who worked later on into their life from contributing to an IRA, have now been removed. Formerly, contributions to a traditional IRA were prohibited at 70 ½. Now, under the SECURE Act you can now continue to contribute to an IRA if you work beyond your 70’s. As before, there are currently no age restrictions on contributing to a Roth IRA.
Removal of “Stretch” Inherited IRA’s
Previously, non-spousal IRA beneficiaries were allowed to “stretch” the required minimum distributions from an inherited account over their lifetime; meaning that potentially one could allow such inherited money to grow tax free for years or even decades. The SECURE Act will now require that non-spousal beneficiaries disperse the funds from an inherited IRA account within ten years, which could potentially mean an increased tax burden for beneficiaries. This change will create an increased need for proper estate planning and tax minimization plans early on to help ensure you can allow your families inheritance continue to grow as tax free as possible.
Lifetime Income Disclosure Statements
To help people gain a better knowledge of what their monthly income in retirement would be, the SECURE Act will now require that 401k plan administrators provide, at least on an annual basis, a lifetime disclosure statement. These statements will be helpful in identifying what an individual could receive each month if your total 401k balance was used to purchase an annuity. The exact process for identifying and calculating these lifetime income statements is still in the process of being developed.
401Ks for Part-Time Employees
Now part-time employees who are over the age of 21, work at least 500 hours per year and have worked for a company for at least three consecutive years have the option to contribute to company’s 401K plan. This not only allows young part-time workers to start contributing to a 401Ks early on, but also allows for older generations to continue to save for their retirement while working part-time as well.
While the SECURE Act may not affect everyone the same, and may indeed provide more benefits to some of the population than others, it is certainly a promising step in the right direction. If you wish to know more about how the SECURE Act can and will affect you, please speak to your financial advisor today; the SECURE Act can and will affect everyone differently so it is important to find out what your options are by speaking to your financial advisor about your specific situation.
Decker Retirement Planning Inc. is a registered investment advisor in the state of Washington. Our investment advisors may not transact business in states unless appropriately registered or excluded or exempted from such registration. We are registered as an investment advisor in WA, ID, UT, CA, NV and TX. We can provide investment advisory services in these states and other states where we are exempted from registration.