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March 09, 2020 | Posted in:

How the SECURE Act is Changing Retirement for Everyone

Retirees, parents, beneficiaries, employers and part-time employees all should pay attention to the SECURE Act, which was signed into law on December 20, 2019. It was designed to reduce the risk that people will run out of money in retirement.

Here are the highlights:

Retirees

There are no age limits to IRA contributions. You can now make contributions to your IRA as long as you are working. Previously the age limit was 70½.

You can keep your money in a retirement account longer. Required Minimum Distributions (RMDs) start at age 72, not 70½.

Parents

You won’t be penalized for withdrawing from an IRA to cover birth or adoption expenses. New parents can draw up to $5,000 from qualified retirement plans and IRAs without penalty for each birth or adoption as long as the money is taken within a year of the child’s birthdate or adoption date. Typically, a 10% penalty is charged on distributions before age 59½.

The “kiddie tax” is back. Unearned income of minors (think interest or dividends) will be taxed at the top marginal rate of their parents instead of trust and estate rates.

529 plans can pay for more. Tax-free distributions from 529 plans can be used to pay for registered apprenticeship programs, and to repay student loans up to $10,000.

Beneficiaries

Inherited retirement accounts must be paid out in 10 years or less. Most non-spouse beneficiaries can no longer ‘stretch’ out payouts over their lifetimes.

Employees and Employers

Part-time employees can now participate in employer sponsored retirement plans if they’ve worked 500 hours in three consecutive years.

Employers have more incentive to offer retirement plans. The SECURE Act increases the maximum tax credit to $16,500 for employers that set up retirement plans.

 

All of these changes became effective January 1, 2020 so now is the time to consider how to take advantage of them in the new year.

 

This article was published in Alloy Silverstein’s Spring 2020 Newsletter. Click here for more content or to subscribe.

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