The SECURE Act becomes law on January 1, 2020 and will make several important changes to retirement planning. Here is a brief overview of what the SECURE Act is and how it may affect your plans.
The SECURE Act stands for Setting Every Community Up for Retirement Enhancement and is meant to increase retirement security. The legislation affects retirement planning for individuals and small businesses.
For individuals, the Act makes several changes. First, it now allows annuities to be included within 401(k) plans. The Act increases the required minimum distribution (RMD) age from 70.5 to 72 years old starting in 2020. The maximum contribution age for IRAs, previously 70.5 years old, has also been removed. For those inheriting IRAs, they must now be completely depleted within 10 years. There are no RMDs within those 10 years however this can cause major tax consequences for high earners who inherit an IRA.
For small businesses, there are three major changes. First, small businesses will receive a tax credit that automatically enroll their employees into their retirement plans. The tax credit is meant as an offset to the cost of initiating a retirement plan. The bill also increases the access to multiple employer plans (MEPs) for small businesses. This access will allow many small businesses to pool together and enjoy economies of scale with their retirement plans. Finally, the bill lowers to threshold for employee participation to either one full year of 1,000 hours worked or three consecutive years of at least 500 hours opening up retirement plan participation for long term part-time employees.
Our advisors are on top of all of the changes occurring as a result of the SECURE act and can help you modify your existing plans or develop new ones. We also have a full team of professionals able to help your business start a retirement plan or audit an existing plan to make sure your company is paying competitive fees and receiving the support it deserves. Please contact us if you would like us to bring our expertise to your situation.