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January 2020
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5 Ways SECURE Act Will Impact Your Financial Plan
Retired Couple
by Jason Vitucci, CFP® & Gene A. Schnabel

After passing the House of Representatives early in the summer on a bipartisan vote of 417-3, the SECURE Act looked destined to become law from early on in 2019. From there, however, the bill languished in the Senate for months and as of mid-December looked like something that would be sidelined. As a last minute holiday gift, Congress attached the bill to funding resolution and the Setting Every Community Up for Retirement Enhancement Act was handily passed by both houses of Congress and signed by the President.

29 separate provisions in the SECURE Act provide some much-needed modernization to retirement legislation and are largely focused on making it easier for workers to save for retirement. Much of the bill makes it easier for businesses to create workplace retirement plans, and opens those plans up to more participants.

There are 5 changes in SECURE that are likely to change the way we navigate financial and estate planning.
  1. Required Beginning Date Moved from Age 70 1/2 to 72
    Age 70 1/2 has been the age at which you are required to begin drawing a defined amount from any tax-deferred retirement plans (IRA, 401k, 403b, etc.). Under SECURE, the need to take a Required Minimum Distribution (RMD) has been pushed out to age 72. This change allows the required beginning date to move more in-line with the growing longevity of Americans, allowing funds to grow tax-deferred for an additional year and half.
     
  2. No Age Restrictions on IRA Contributions
    Under previous law, the ability to contribute to an IRA after required beginning date was prohibited. Building on the longevity thoughts in point 1, taxpayers with earned income can make Traditional IRA contributions (only Roth was allowed in the past). This will allow those who continue to work to have ability to continue to save.
     
  3. "Stretch" Provision for Inherited IRAs Virtually Eliminated
    Perhaps the largest impact to planning comes in this provision. There is NO CHANGE to spousal inherited tax-preferenced retirement accounts. IRAs, 401ks, and other deferred accounts inherited by a spouse can continue to be combined with their own and treated as such. Previous law allowed non-spouse beneficiaries to draw out these inherited accounts as long as over their entire life via an annual Required Minimum Distribution. Under SECURE, inherited funds will need to be completely withdrawn from inherited IRAs and retirement plans within 10 years with payment the resulting tax liability. This will create an enormous planning need as the tax impact of these withdrawals could be immense. In 2017, the total assets of traditional IRAs alone topped 7.85 trillion.

    Exceptions to the 10-year deadline which still allow a non-spouse beneficiary to withdraw over their lifetime include if the beneficiary is a minor, disabled, chronically ill or not more than 10 years younger than the deceased IRA owner.
     
  4. Penalty-Free Access to Retirement Accounts for Birth or Adoption of Child
    Penalty-free access to retirement funds before age 59 1/2 is strictly limited to unreimbursed medical expenses (above certain thresholds), qualified higher education expenses (i.e., college), first home purchase (up to $10,000), and certain expenses for qualified military reservists. Under SECURE, an additional provision has been created to allow for a $5000 withdrawal for the birth or adoption of a child. Married couples, can each withdraw $5,000 from his or her own account, penalty-free.
     
  5. 529 Plans Can Be Used to Pay Student Debt
    529 college savings provide tax-free growth when proceeds are applied to qualified educational expenses. A provision in the SECURE Act allows up to $10,000 to pay off student debt. The $10,000 is a lifetime amount, and NOT an annual limit, however additional $10,000 can be used to pay off student debt for each of the 529 plan beneficiaries' siblings. There is some complication in making this happen as the beneficiary on the plan would likely need to be changed.
As the finer points of this new retirement policy become clearer, you can expect more details on the SECURE Act. We plan on offering some educational opportunities in the coming months, and we will certainly address pertinent issues in any planning meetings with current and prospective clients.
To learn more about how we work with our financial planning clients, contact the office today. As a valued 1st Nor Cal member, we invite you to contact us for a complimentary financial analysis. We also invite you to attend any Retirement Planning workshops that we hold. For more information about our practice, or to make an appointment, please call us at (925) 370-3750 or visit our website www.vitucciintegratedplanning.com.
2890 N. Main Street, Suite 201
Walnut Creek, CA 94597
925.370.3750
info@vitucciplanning.com
 
Securities through First Allied Securities, a registered broker dealer, member FINRA/SIPC. Advisory services offered through First Allied Advisory Services, Inc. Registered Investment Advisor. Investments not FDIC or NCUA/NCUSIF insured, not insured by Credit Union, may lose value. Products offered are not guarantees or obligations of the Credit Union, and may involve investment risk including possible loss of principal. 1st Nor Cal CU, Bay Area Retirement Solutions and First Allied are all separate entities. Jason Vitucci CA Insurance Lic.: 0F59894, Gene A. Schnabel CA Insurance Lic.: 0663016
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