How Does the SECURE Act Affect Retirement Planning?

President Donald Trump signed the Setting Every Community Up for Retirement Enhancement (SECURE) Act in December of 2019. After it became law on January 1, 2020, the legislation brought changes for long-term retirement savings. It can affect Americans at every age. Continue reading below to learn more and contact an experienced California estate planning attorney for assistance preparing your estate.

What is the SECURE Act?

Under the SECURE Act, a variety of retirement account rules were changed. This includes those who are eligible to contribute to retirement accounts and when withdrawals are required. This new legislation also adds a new exception to the early withdrawal penalty. The following are important retirement account changes that come from the SECURE Act:

  • The required minimum distribution age increased from 70 ½ to 72
  • The age limit for IRA contributions was removed
  • Inherited retirement account distributions must now be taken within 10 years
  • New parents can take penalty-free withdrawals.
  • Long-term part-time employees will now be eligible for 401(k) plans.

Required Minimum Distribution Age

In the past, individuals were required to start taking withdrawals from their traditional IRA by April 1 of the year after they turned 70 ½. These are known as required minimum distributions. Moving this age to 72 allows IRA owners to defer paying tax on the funds while they continue to grow. 

Age Limit for IRA Contributions

Individuals with an individual retirement account used to only be able to contribute to their account until they were 70 ½. However, the age limit has been removed under the SECURE Act. This allows them to contribute to their IRA as long as they are still working. 

Inherited Retirement Account Distributions Taken Within 10 Years

Before the new law, those who inherited IRAs could stretch out withdrawals and tax payments on each distribution over their life expectancy. Now, the beneficiaries of retirement account owners who pass away after January 1, 2020 may be required to withdraw assets in an inherited IRA or 401(k) within 10 years. There are exceptions to this, including a surviving spouse, minor children, disabled and chronically ill beneficiaries, and beneficiaries who are up to 10 years younger than the IRA owner.

New Parents Can Take Penalty-Free Withdrawals

Before the new law, those who took a withdrawal from their IRA or 401(k) before age 59 1/2, the amount would usually be subject to income tax and a 10% penalty. The IRS allows penalty-free early distributions from some types of retirement accounts for specific circumstances. The SECURE Act adds an exception to this list, allowing a $5,000 withdrawal after the birth or adoption of a child.

Long-Term Part-Time Employees Eligible for 401(k) Plans

In the past, part-time employees needed to work a minimum of 1000 hours during a 12-month period to contribute to a 401(k). The new law gives a way for more part-time workers to become eligible for a 401(k) plan. Employees who are 21 years old or older and log at least 500 hours in a 12-month period for three consecutive years can contribute to a 401(k) plan.

Contact our Firm

Working with an experienced estate planning attorney, such as Jaci Feldman of the Woodland Hills, California, Law Office of Yacoba Ann Feldman, will ensure that you are taken care of when you need it most. Do not delay. Estate planning is a more urgent matter than you may think. You never know what the future holds. Contact The Law Offices of Yacoba Ann Feldman to schedule a consultation today.

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