Five Things Young Investors Should Know About the SECURE Act and Retirement Planning
By Katie Bruno, MIMFA
CERTIFIED FINANCIAL PLANNER™ Professional
The biggest changes to the U.S. retirement system since 2006 were included in a bipartisan-supported spending bill that President Trump signed into legislation at the end of 2019.
The SECURE legislation, which stands for “Setting Every Community Up For Retirement Enhancement,” set out to address the retirement savings “crisis” that is looming in the United States.
The majority of the provisions set forth in the SECURE Act affect how people will be able to save money for retirement, and influence how people will be able to use their money over a period of time. Much of the focus of the bill has been on annuity provisions, and required minimum-distribution rules that impact retired investors. However, there are several features that impact young investors.
The financial planners at Morey & Quinn Wealth Partners in Omaha, NE recommend having a conversation with your financial professional to discuss changes that may apply to your situation.
Five highlights of 2019 SECURE Legislation:
1. THE “STRETCH IRA” WEALTH-TRANSFER STRATEGY WAS ELIMINATED
Under old rules, non-spousal beneficiaries of inherited retirement accounts could typically spread required minimum distributions over their life expectancy, until the money was depleted. Under new rules, non-spousal beneficiaries are required to take distributions from inherited retirement accounts over a limited, 10-year period.
This rule applies to accounts where the owner passes away in 2020. (Any beneficiaries of account owners who were deceased by December 31,2019 are grandfathered under the old rules.) There are exceptions for spousal beneficiaries, those who are chronically ill or disabled, or beneficiaries who are within 10 years of the age of the original account owner. Your financial advisor can help provide more detail and recommend adjustments if this situation applies to you.
2. A PENALTY-FREE WITHDRAWAL CAN BE TAKEN FOR THE BIRTH OR ADOPTION OF A CHILD
The government wants you to save money for your retirement, so to discourage people from using retirement savings for anything other than retirement, they typically charge a premature withdrawal penalty. There are several exceptions, including: death, disability, deductible medical expenses, qualified post-secondary education, active duty, and first-time home buying, among others.
The SECURE Act adds a new rule allowing an aggregate amount of $5,000 per parent to be distributed from a retirement plan without the 10% penalty in the event of a qualified birth or adoption. The distribution would need to occur within one year of the adoption becoming final or the child’s birth.
3. MORE “QUALIFIED EXPENSE” OPTIONS WERE ADDED FOR 529 PLAN DISTRIBUTIONS
The SECURE Act increased the list of qualified expenses of 529 plan distributions. 529 Provisions now allow distributions for apprenticeship programs and “qualified education loan repayments.” Up to $10,000 annually may be withdrawn to pay both principal and interest for student loan debt for the plan beneficiary, and an additional $10,000 may be used to repay loans for beneficiaries’ siblings.
4. NON-TUITION FELLOWSHIP AND STIPEND PAYMENTS CAN BE USED AS BASIS FOR IRA CONTRIBUTIONS
Previously, graduate or post-doctoral students were unable to treat stipends as compensation and therefore unable to contribute to an IRA or Roth IRA. Effective January 1, 2020, these payments will be treated as basis, and those students who receive them can use them as basis for a contribution.
5. CAP INCREASED to 15% FOR AUTOMATIC ENROLLMENT IN SAFE HARBOR PLANS
This rule applies to employers who offer 401k plans where participants are automatically enrolled upon eligibility. Previously, salary deferrals were capped at 10%, meaning employees were not eligible to contribute more than 10% through automatic enrollment. The cap has now changed to 15%, starting January 1, 2020.
Plan Your Retirement Strategy with Morey & Quinn Financial Planners
At Morey & Quinn Wealth Partners, we understand that planning for retirement can be a complicated undertaking. That’s why we’re here! With a full spectrum of strategies for a tailored plan, our professional guidance and access to resources helps simplify the process. Because when it comes to your financial future, there should be no compromise!
Whether you are already retired, in mid-career, or a young professional just beginning your journey, we can help you plan for the things that matter most.
Morey & Quinn Wealth Partners
Raymond James® LIFE WELL PLANNED.
Toll Free: 877.541.6593
11225 Davenport St, Suite 109 Omaha, NE 68154
Any opinions are those of Katie Bruno, MIMFA, and not necessarily those of RJFS or Raymond James. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Raymond James does not provide tax or legal services. Please discuss these matters with the appropriate professional.
As with other investments, there are generally fees and expenses associated with participation in a 529 plan. There is also a risk that these plans may lose money or not perform well enough to cover college costs as anticipated. Most states offer their own 529 programs, which may provide advantages and benefits exclusively for their residents. The tax implications can vary significantly from state to state.
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