Changes are coming to retirement rules, following the passage and signing into law of the Setting Every Community Up For Retirement Enhancement Act of 2019 (SECURE Act).
What does that mean for the individual retirement saver? The answer will obviously vary depending one’s age and the complexity of their financial situation. Indeed, some may want to consult a financial professional if their circumstances are particularly complicated or retirement plans near.
But for most people, there are three general areas addressed in the new law worth considering:
What area applies to you and the degree to which you may want to adjust your retirement planning will depend on your individual circumstances.
If you are one of the nearly 60 million people employed by small business in the country, but haven’t had access to a 401(k) retirement savings plan, that may change.
The new law helps make it easier for more employers, especially smaller ones, to offer 401(k) retirement savings plans. Businesses can get a tax credit to help cover the costs of starting an automatic-enrollment retirement plan. Small businesses can also band together to set up and offer 401(k) plans through a third-party to help them manage fiduciary responsibilities and costs on an easier basis than exists today. (Related: What the SECURE Act means for businesses)
If such changes mean your employer will probably start offering a 401(k) plan, you’ll likely want to take advantage of it. (Learn more: Why saving for retirement is important )
And if you are a business owner, you may want to investigate taking advantage of the law’s provisions as a way of rewarding workers or attracting talent.
If you already have some form of retirement savings plan, either through an Individual Retirement Account (IRA) or a 401(k) savings plan through your employer, you’ll want to check dates and your plans.
The new law pushes back the age at which you will be required to start withdrawing money from those accounts. It was 70 ½ years of age. But, as the new law takes effect, will be increased to 72 years of age. That means savings can grow longer. (Related: What you need to know about retirement plan limits )
The new law also eliminates the the 70 ½ year-old age limit on contributing to a traditional IRA. That rule essentially discouraged retirement savings in IRAs for people who continued to work later in life.
Obviously the importance of such age-rule changes will vary depending on your age. Younger folks will want to be cognizant of the rules in terms of long-term planning, but will likely want to stay the course on steady investment plans . Those closer to retirement may want to consult their financial professional about specific ways to take advantage of any changes relative to their specific financial circumstances.
The new law also opens the door for more in the way of annuities to be offered in retirement plans.
Generally, an annuity is a financial contract where, in exchange for a lump sum payment or a series of payments, the annuity will make payments to you at a future date or series of dates. Annuities tend to appeal to those who may be concerned about outliving their savings and want a guaranteed income stream in retirement.
But annuities can vary widely in type and function. And what is appropriate for one person may not be appropriate for another. Many opt to consult with a financial professional for advice about what may fit into a specific retirement plan. (Related: Does an annuity fit into your retirement plan? )
But a good first step is to get a good understanding of what annuities offer.
The new law also includes other provisions that could have an effect on specific situations in an individual’s finances and planning.
For instance, there are provisions allowing an additional penalty-free retirement plan withdrawal option for the birth or adoption of a child.
Also, the “stretch IRA,” a provision in the tax code allowing withdrawals from an inherited IRA to be stretched out over a lifetime, has been changed to only allow distributions to take place over 10 years for certain types of beneficiaries. (Related: Alternatives to the ‘stretch’ IRA ).
The new law covers much more ground that may affect different types of retirement savers and investors in different ways, making it advisable to consult a financial professional. But, as a starting point, the three areas above are where many people should look if they're concerned about their retirement.
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