It’s a new year and a new decade, so thoughts often turn to resolutions, plans, and goals. Abacus prides itself on being a dedicated resource in the process of evaluating annual goals and strategies, and 2020 is no different.
One thing you may have heard about is the passage of the new SECURE Act, which makes meaningful changes to the tax code that will have a big impact on retirement planning–especially for those with IRAs and beneficiary IRAs.
Others who might benefit are people expecting or adopting a child, those with relatives who have student debt, graduate students receiving non-tuition fellowships, and employers offering retirement accounts. Below are 8 key areas the new SECURE Act considers:
- Approaching age 70? Prior to the new law, you were not allowed to make IRA contributions after age 70 1/2. SECURE now allows you to continue making contributions to your IRA, as long as you’re still working. The age 70 1/2 limit has been eliminated.
- Over 70 and still working? While you can’t make an IRA contribution for 2019, you will be able to make one for 2020 and beyond. As it has become far more common today for people to enjoy working well into their 70’s, the new law helpfully reflects these changing demographics.
- Thinking about retiring? You may have planned to start taking mandatory distributions (RMDs) from your IRA and 401(k) accounts at age 70 1/2, but now you can wait until age 72. This extra eighteen months gives you a buffer to make retirement decisions at a pace that might be more comfortable for you during this significant life transition. (Note: If you are already taking RMDs, or if you turned 70 ½ in 2019 (or earlier), then the new RMD rules do not apply to you.)
- Inheriting an IRA after December 2019? Planning to pass an IRA to your heirs? The rules for taking distributions from inherited accounts have changed significantly. Generally speaking, no RMD will be required, but all funds must be disbursed within 10 years for non-spouse inheritors. There are exceptions, and the rules are complicated, especially if you have named a Trust as the IRA beneficiary. This is definitely an area to discuss with Abacus, along with your CPA or estate attorney.
- Expecting or adopting a child? You can now withdraw up to $5,000 from your 401(k) or IRA to cover first-year child costs, without paying the traditional 10% penalty. This rule also applies to your spouse. This means married couples have access to a combined penalty-free withdrawal of $10,000. The catch? Withdrawals will still be considered taxable income in the year taken.
- Are you a graduate student receiving non-tuition fellowship or stipend income? If so, you can now save some of that money into your IRA or Roth IRA. The sooner you begin setting aside money for retirement at the beginning of your professional life, the more you will grow by the time you get there. This lets you plan for the future while still building it.
- Do you, a child, or a sibling have student debt? You can now use funds in a 529 plan to pay some of that debt down, in some cases up to $10,000. There are also expanded opportunities to use your 529 plan in service of Apprenticeships. The rules involving these aspects of the SECURE Act are also complex, and we encourage you to contact us to learn more.
- Do you own a business and offer a retirement plan to employees? There are now tax incentives for you when you provide automatic enrollment to your employees. It will also be easier to offer annuities as an option in your plan. Finally, the requirements for including part-time employees in the plan have also changed. All of these additions are an effort to help expand access and facilitate the coming retirement boom in America.
Reach Out Today
Given how infrequently major tax laws change, it’s important to stay aware to maximize your own unique situation. Whether you’re just embarking on a path to build your personalized financial plan or you are a seasoned planner, significant changes in existing tax laws are a great reason to reach out to your Abacus advisor today.