Tucked into the back end of the spending bill is the Setting Every Community Up for Retirement Enhancement Act of 2019 (the SECURE Act). It took effect this year and is the most sweeping retirement legislation in more than three decades. Here are some highlights.
First, the SECURE Act eliminates the age limit for Traditional Individual Retirement Account (IRA) contributions. Before the law, Traditional IRA owners couldn’t contribute after age 70-and-a-half. Now, there is no age limit, but you must earn income.
Another change is that required minimum distributions (RMDs) – forced withdrawals from taxable retirement accounts – now must be taken at age 72, instead of age 70-and-a-half, which was confusing. That said, if you turned age 70-and-a-half before 2020, you’re under the old law. Those under the new law gain 18 more months of deferred growth before RMDs.
Offering some help to families, the SECURE Act allows for up $5,000 in penalty-free withdrawals for birth and adoption costs. The money is taxable if taken before age 59-and-a-half, but there is no 10 percent penalty. Keep in mind, the $5,000 limit is for your lifetime.
Under the new law, employers now have liability protection from including annuities in workplace retirement plans. Previously, employers were hesitant to offer annuities because if a payment was missed, the employer could be held liable. This should mean more income options for workers in the future.
Lastly, the SECURE Act eliminated the "stretch" IRA. Under the old law, non-spouses who inherited IRAs could defer RMDs over their life expectancies, instead of the prior account owner’s life expectancy. Now, inherited IRAs must be liquidated within 10 years, except for some exempt groups of people.
The dust is still settling, but one thing is certain – it’s a new, hopefully SECURE, retirement world.