Chapter 8: Planning for Retirement

On December 20, 2019, President Trump signed into law as part of the new government spending bill “The Secure Act, (Safeguarding Every Community Up for Retirement Enhancement - SECURE)”.          

The Secure Act takes a number of very positive steps to help you achieve and maintain your financial independence (Point X), most of which will take effect January 1, 2020.

Some of the highlights of the bill are the following:

1. Increasing the RMD age from 70 ½ to 72 years old. Previously, qualified account holders such as those with a 401(k) or IRA had to withdraw required minimum distributions (RMD) in the year they turned age 70.5. The SECURE Act increases that age to 72, which may have tax implications, depending on where the account holders fall in their tax bracket in the year they withdraw. The 70.5 age was based on life expectancies in the early 1960s, the House said, and had not been updated since.
2. Repealing age limit for IRA contributions. Even those over 70 ½ with earned income can contribute to an IRA. “As Americans live longer, an increasing number continue employment beyond traditional retirement age,” the House Committee on Ways and Means said in a summary of the bill.
3. Requiring beneficiaries of inherited IRAs to distribute all assets within 10 years. There are no RMDs, but the entire balance must be distributed after the 10^th year.
4. Penalty-free withdrawals for birth/adoption expenses. New parents can withdraw up to $5,000 from an IRA or an employer-sponsored retirement plan to pay for birth and/or adoption expenses, through the first year after the birth or adoption. Taxes still need to be paid on pre-tax contributions, but no penalties apply to the withdrawal.
5. Change to 529 plans. Assets in these college-savings plans can now be used to repay up to $10,000 in student loans.
6. Part-time workers can participate in a 401(k) plan. Employees must have worked at least 500 hours a year for three consecutive years in order to be eligible.
7. Lifetime income disclosure. The bill requires the Department of Labor to propose rules for a new disclosure to plan participants that will illustrate the participant’s projected monthly income in retirement based on current retirement assets. It’s designed as a kind of “progress report” to show employees how they are doing on saving. The rule-making process for this is likely to take a year or more, followed by an implementation period, so it could be 2021 or 2022 before this becomes standard.
8. The SECURE Act opens the gates for more employers to offer annuities as investment options within 401(k) plans. Currently, employers hold the fiduciary responsibility to ensure these products are appropriate for employees’ portfolios, but under the new rules, the onus falls on insurance companies, which sell annuities, to offer proper investment choices.