The most significant legislation affecting retirement became law — as of Friday, Dec. 20.
Congress passed an important retirement-savings law called Setting Every Community Up for Retirement Enhancement, or the SECURE Act of 2019. The law takes effect on Jan. 1, 2020. After stalling for months, Congress suddenly passed the bills as an attachment to budget appropriations.
SECURE Act a game-changer for retirement plans
Here are some key provisions:
— More time in IRAs and 401(k)s. The bill raises the age for required minimum distributions (RMDs) from 70 1/2 to 72 years old.
— Grant older workers benefits. As long as you’re working, you can still contribute to your IRA after age 70 1/2. Previously, you couldn’t.
— Boost small-business 401(k)s. Small businesses can now band together in group plans.
— Annuity adoptions. Would allow employer-sponsored 401(k) plans to add annuities as investment options.
— 529 plans. They can be used to repay up to $10,000 in student loans, as well as for siblings.
Here are more details:
New age limits
Giving investors with tax-deferred accounts another year and a half before Uncle Sam requires withdrawals allows us to save longer for retirement, even after withdrawals start.
“It’s a recognition that age limits were arbitrary, and that Americans are working longer because they need to save more,” Wharton professor Olivia Mitchell said
However, here’s the government money grab: To make up for lost tax revenue, the new law scraps what’s known as a “stretch IRA.”
Americans who inherit an IRA must now withdraw the money within 10 years of the account owner’s death, along with paying taxes. Surviving spouses and minor children are still exempt.
Under the new law, those types of exempt heirs can still spend down inherited IRA accounts over their lifetime, an estate-planning strategy known as the “stretch IRA.”
“In all instances, you can still do a spousal rollover,” said Jennifer Smith, trust and estate attorney at MDSU in Wilmington.
So what’s a better planning tool? Stretch IRAs are out. IRA expert Ed Slott argues that life insurance “will now be a more tax-efficient asset to pass to beneficiaries since the long-term stretch IRA is eliminated for most non-spouse beneficiaries.”
(P.S. Yes, existing inherited IRAs are grandfathered under the previous rules.) The SECURE Act expands access to multiemployer plans, or MEPs, to pool resources and share the costs of a retirement plan for employees.