The SECURE Act and what it means for your money
There is a festering problem with Americans. Too few of us are saving enough to adequately fund our retirement. Social security income in retirement, on its own is will likely be insufficient. Furthermore, gone are the days when a company pension could be relied upon as a primary income vehicle in retirement.
A survey conducted by the Bureau of Labor Statistics reveals that just over half of eligible workers are enrolled and contributing to a employer provided retirement plan, and of those employees who are participating in these plans, they are often not invested in a manner suitable for their goals. A report by retirement custodian Vanguard revealed that the average 401(k) plan balance held with Vanguard was $92,148 yet that number was skewed by “a small number of very large accounts that significantly raises the average above the median.” The report further shows that one third of participants had a balance in 2018 of less than $10,000.
With this as a backdrop, the U.S. Legislature passed and on December 20, 2019 President Trump signed The Setting Every Community Up for Retirement Enhancement Act of 2019, better known as the SECURE Act. The aim of this law is to provide American workers with additional tools to save or prepare for retirement.
What does the SECURE Act mean for your retirement savings?
1. The age at which you are expected to begin Required Minimum Distributions has been increased from age 70 ½ to age 72. Specifically, if by the end of 2019 you have not attained the age of 70 ½ , the requirement to begin drawing from your IRA or employer 401(K) is now pushed back to age 72. This allows your money to continue to grow and compound on a tax deferred basis. You may still withdraw money at age 70 ½ but the requirement has been pushed off until age 72.
2. Part-time employees may become eligible for retirement benefits based upon their tenure and/or how many hours per year they work for an employer.
3. Enables businesses to auto-enroll employees into retirement plans and increases the cap on wages that can be automatically contributed from 10% to 15%.
4. Permit penalty-free withdrawals of up to $5,000 from 401(k) accounts to offset the costs of having or adopting a child.
5. If you inherit an IRA from a person other than your spouse, beginning in 2020 or thereafter, you are now required to “spend down” or distribute the entire balance of the account within 10 years of the death of the original account holder. This provision can create an unexpected tax burden lasting up to 10 years so thoughtful planning is required in these cases.
There are other provisions within this new law that, depending on your unique circumstances may or may not be relevant to your situation. The items listed above are those that are most likely have some bearing on your financial situation. What is certain is that this law is not the antidote needed to solve our retirement savings problem but it does provide us with additional tools to help us rise to the challenge.
If you haven’t begun saving or, if you are saving through your employer but are not sure if you’re on the right path, I can help. Whether it’s to help you understand and select the appropriate investments based upon what is available to you or to help you figure out how to access your savings and make it last while in retirement – or any topic in between I’d be happy to offer my help.
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