A new federal law could affect how you save for retirement.
The Setting Every Community Up for Retirement Enhancement (SECURE) Act is the first major change in federal law affecting retirement savings in roughly 15 years. If you are saving for retirement or want to save for retirement, be aware of the changes.
What will the SECURE Act change?
The SECURE Act, which had bipartisan support, went into effect January 1, 2020. The act’s objective was to make it easier for Americans to save for retirement.
Here are some of the highlights:
- More information: The act requires employers to tell employees how their retirement savings converts to income after the employee retires.
- More annuities: The act allows employers to offer annuities in employee 401(k) plans. Annuities are complex tools, but they can provide lifetime income after retirement.
- No stretch IRAs: Under the SECURE Act, individuals can no longer stretch their IRA benefits and defer taxes for their beneficiaries. Any non-spousal beneficiaries will have to draw down assets in an IRA within a decade of inheritance.
- RMD changes: Under the old rules, individuals had to take required minimum distributions (RMDs) from their retirement when they turned 70.5. The SECURE Act increases the age to 72. However, if an individual turned 70.5 in 2019, the old laws still apply.
- Contributions to IRAs: The new law did away with the age limit for individuals to contribute to their independent retirement account (IRA). Since Americans are working longer than ever before, this allows them to continue adding to their retirement savings.
- Auto-enrollment: The new law offers incentives for employers to automatically enroll employees in retirement plans.
If you have questions about how you can use the SECURE Act, contact an experienced attorney.