5 Things Every Retirement-Conscious Investor Should Know About the SECURE Act
1. Required minimum distributions have been extended to age 72
The mandated distribution from your retirement accounts is now 72 years of age. It used to be 70.5. So you have the freedom to let your investments work a little longer and recover from the wild year the stock markets have gone through.
The new extended distribution age only applies to folks who turned 70.5 years old in 2020 and beyond. If you turned 70.5 in 2019, you must continue taking your required minimum distributions.
IMPORTANT: Required minimum distributions have been temporarily suspended for everyone - just for 2020.
2. Non-spousal beneficiaries must draw-down their inherited IRA within 10-years
The new rules say that you must distribute your entire account balance within 10-years (following the year you inherit your account). During that 10-year period you have the freedom to simply defer your entire distribution until the 10th year, or take small incremental distributions over that 10-year time period.
There are exceptions to the new rule. Certain beneficiaries can still follow the old rules that allow them to stretch out distributions over their lifetimes.
Here are the individuals that can still follow the old rules...
- Surviving spouse
- Minor child (but once they reach the age of majority they must follow the new rules)
- Disabled or chronically ill individuals
- Individuals less than 10-years younger than the deceased
- Those who inherited an IRA prior to January 1st 2020
3. Contribute to your traditional IRA beyond age 70.5
In the past if you were age 70.5 you could NOT make contributions to your traditional IRA. But now under the new law, if you're still working and aged 70.5 or older, you can continue making contributions. So even if you're in your 80's or 90's, and you're working and generating earned income, you can still effectively build your nest egg (and reduce your taxes) by contributing to your traditional IRA.
4. Guaranteed income within your 401(k)
Your employer sponsored retirement plan can now add annuities as an available investment option. So if your objective is to create more safety, or build a guaranteed stream of income, a prudently selected annuity can potentially make sense. And now that annuities are available within plans like 401(k)s, you have more options for building your retirement resources.
5. Expanded tax credits for your small business retirement plan
If you own a business and it's been at least 3-years since you offered a retirement plan, your new retirement plan is eligible to receive a healthy tax credit that's the greater of $500 or $250 per eligible employee (up to $5,000).
Important to understand the credit creates a dollar-for-dollar reduction in your taxes, which can be applied for the first three years of your new plan's operation - that's huge. Plus if you establish automatic enrollment, there's a bonus credit: an extra $500 tax credit that can also be applied over that same 3-year time period. So potentially $16,500 in total tax credits!
What's next
As you're learning the SECURE Act has created new opportunities and potential benefits for those who pay attention. And if you're sensing you might be able to maximize the new rules for your future benefit to schedule a free 30-minute digital (private) guidance session. We'll use that time to teach you the important details to help build your knowledge so you can plan more effectively for your retirement.
-Colin