What is the SECURE Act?

WHAT IS SECURE ACT? In late December, President Trump signed the Setting Every Community Up for Retirement Enhancement (SECURE) Act into law. If you have a 401(k) or IRA, there are some changes coming that you need to be aware of even if you are already retired and are spending down your assets.

Generally, the SECURE Act raises the age limits on saving and spending retirement funds and expands access to 401(k) plans for small businesses and even for part-time employees.

First, the required minimum distribution age has been raised from 70 and a half to 72. This change will allow your money to grow longer while you approach retirement. But if you turned 70 and a half in 2019, you’re covered under the old rules.

There used to be a maximum age of 70 and a half to make traditional IRA contributions, but under the new act, starting in tax year 2020, that age limit has been eliminated. But you must have earned income to contribute to an IRA. The thought here is that as life spans increase, there is a greater need to be able to put extra cash away to cover our longer retirement years.

Part-time workers benefit under this new law, if an employer offers retirement plans, because employers will now be required to allow part-time employees who work at least 1,000 hours annually or for workers who have worked at least 500 hours for three consecutive years to participate in their company’s 401(k) plan.

If you inherited an IRA or 401(k) plan, the stretch IRA rules have been eliminated, so now you must draw the whole balance down on an inherited IRA in 10 years or less. The old rules allowed heirs to stretch out the payments over their lifetime, which would limit their tax liability from the extra income during their prime earning years.