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SECURE Act Passed

How the SECURE Act Could Impact your Retirement Plan

The bill was signed into law on December 20th. What is in The SECURE Act (Setting Every Community Up for Retirement Enhancement) and how will it affect your retirement plan when the Act takes effect on January 1, 2020? Much of the language in the SECURE Act applies to employer – sponsored retirement plans (encouraging auto-enrollment, allowing multiple employer plans for small businesses, etc.) but today let’s take a look at a few key provisions pertaining to individuals.

The Good:

Increase to the RMD (Required Minimum Distribution) age The Act increases the minimum age for RMDs in IRAs and 401(k)s from age 70 ½ to age 72. This change applies to anyone who reaches age 70 ½ on or after January 1, 2020. Age 70 ½ was always a confusing start date, allowing those with birthdays in the second half of the year to wait an extra year. The new age gives savers an extra year and a half to delay withdrawals and the income tax associated with them. Removes the Restriction of IRA Contributions after age 70 ½ The Act now allows anyone who is still working and has earned income to contribute to a traditional IRA past age 70 ½ starting in 2020. As more Americans are working longer, this change makes a lot of sense. 529 Plan Distributions for Student Loan Payments The law expands the definition of a tax-free or qualified distribution from a 529 savings plan to include repayment of up to $10,000 in qualified student loans, and expenses for certain apprenticeship programs. Penalty Free IRA Withdrawals of $10,000 for Birth or Adoption of Child Most withdrawals from IRAs prior to age 59 ½ incur a 10% penalty in addition to tax owed. The new law allows for penalty free withdrawals of $10,000 in the year of a birth or adoption. While it may not be the best policy to encourage new parents to use their retirement funds for this purpose, it provides relief during a very exp