2020 Brings Changes to Retirement Savings

Financial Professional Barry Bigelow Explains the New SECURE Act (Setting Every Community Up for Retirement Enhancement Act)

DULUTH, Minn. – It’s the first major law impacting retirement savers in more than a decade.

The SECURE Act took effect January 1, which means big changes for anyone with a 401(k) or IRA.

Financial Professional Barry Bigelow from Great Waters Financial recently stopped by FOX 21 Local News from 7 – 9 a.m. to discuss how the changes will impact retirement savers, and what you need to know.

What is the Secure Act?

• The Setting Every Community Up for Retirement Enhancement Act, also known as the SECURE Act, is the most significant legislative action impacting our retirement system in more than 10 years.
• It impacts everything from the withdrawals we’re required to take in retirement to the way we pass down our wealth to the next generation. The goal is to increase access to retirement savings and help prevent retirees from outliving their money.
• While there are certain provisions that will impact each of us in different ways, there are a few main things we should all be aware of.

What are the biggest changes impacting retirement savers? RMD Age Increases to 70

• The number of Americans working into their 70s has skyrocketed over the past 20 years.
• Those continuing to work may not need to or want to take their required minimum distributions from their tax-deferred retirement accounts at age 70 ½. The SECURE Act raises the RMD age to 72.
• Those who turn age 70 ½ in 2020 do not have to take their RMDs until age 72.
• Pushing the RMD age back allows your IRAs and 401(k)s to grow without being depleted by distributions and taxes.

IRA Contributions at Any Age

• In the past, you could not contribute to an IRA after age 70 ½.
• The SECURE Act allows you to continue contributing to your IRA at any age as long as you are still working.
• For example, if you and your spouse are 71 years old and still working, you can save a combined $14,000 in each of your IRAs in 2020.
• This gives you a valuable tax deduction and helps you save more for retirement.

401(k) Options Expanded

• The SECURE Act also includes a few changes impacting our employer-sponsored retirement accounts.
• For one, it encourages more small businesses to offer employees a 401(k) by utilizing tax credits to cover some of the cost.
• Also, part-time employees who did not have access to their employer-sponsored retirement account may now be eligible to contribute to a 401(k).
• The SECURE Act also allows plan providers to include more guaranteed lifetime income options, or annuities, in employer-sponsored 401(k)s.

Penalty-Free Distributions for Births or Adoptions

• The SECURE Act also impacts new parents.
• The new law allows a $5,000 withdrawal from IRAs and 401(k)s following the birth or adoption of a child without having to pay the usual 10% penalty.
• You will pay income tax on the money if it is not repaid to the account.

How does it impact the way we inherit money?

• Perhaps one of the biggest changes stemming from the SECURE Act is the end of the Stretch IRA.
• In the past, an IRA beneficiary who was not the owner’s spouse could stretch out RMDs over his or her own life expectancy.
• The SECURE Act now requires non-spouse heirs to withdraw all the money from the inherited IRA within 10 years following the owner’s death.
• By taking larger withdrawals from the account over a shorter period of time, non-spouse heirs are facing a much bigger tax bill – Not only on the money they inherit, but also on their own earned income by possibly bumping them into a higher tax bracket.

Is there anything folks should do now to prepare for the changes?

• This is a good time to sit down with your tax professional, estate planning attorney and financial advisor to determine how the SECURE Act will impact your retirement plan and the legacy you wish to leave for your loved ones.
• There are a number of options to help you reach your retirement goals, and it’s important to work with the right professionals and have a proper plan in place.

Click here to learn more from the professionals at Great Waters Financial.

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