The Secure Act & Your Retirement Savings RMD



In December 2019, federal legislation, the Secure Act was signed into law by the President. The legislation, which stand for “Setting Every Community Up for Retirement Enhancement”, makes some serious changes to the future of retirement. The result is that the Required Minimum Distribution (RMD) age for retirees has been shifted from 70 ½ to 72.


When a retiree turns 70 ½, they are legally required to make withdrawals from their Individual Retirement Account (IRA), causing it to decrease in value and its results in a taxable event for retirees. However, now, retirees will have a little more breathing room. Instead of being forced to take money out of their savings, at 70 ½. Seniors have some extra time to let their savings go untouched.


The Secure Act also erases the age cap which a retiree can contribute to their IRA. Seniors, who choose to work into their seventies and beyond, can grow their IRA as long as they keep working. While the Secure Act does have some good news, there is also some not so good.


For beneficiaries of an IRA, who are not married to the account owner, they no longer have extended time before they take distributions of funds from an inherited account. Now, all funds must be distributed to non-spouse beneficiaries within 10 years after the account holders’ death.


The Secure Act also makes some changes to the Qualified Automatic Contribution Arrangement (QACA). In 2006, QACA was passed by Congress, to establish an automatic contribution to an employees 401k plan, with a cap of 10% of their paycheck. The Secure Act now boosts that to 15%. Additionally, part-time employees no longer need work at a company for 1,000 hours before they can invest in a 401k.


Now part-time workers can contribute to their retirement savings after only 500 hours of employment. Small Businesses will also be affected by the Secure Act. A 50% tax credit will be available for small businesses for employee retirement plan costs, with a limit of $5,000. An additional $500 credit is available for start up costs for 401k and IRA plans, including automatic enrollment.


Finally, multiemployer plans are now available to all employees under a small business, no matter their role. While most of this news effects seniors and active employees, it could impact your grandchildren as well. Through a 529, a tax advantaged educational savings plan, you can help your grandchildren pay off up, to $10,000 of their student loan debt. For retirees who are already over the age of 72, most of these items will not affect you.

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