What is the SECURE Act?
Congress passed the Setting Every Community Up for Retirement Enhancement (SECURE) Act on December 19th and will incorporate the Act into a 2020 fiscal year appropriations bill.
The Act is made up of 29 bipartisan provisions designed to bring comprehensive reform to retirement security legislation. The Act is meant to increase individuals’ overall access to retirement options and modernize the current retirement plan system.
What changes is the SECURE Act bringing?
The SECURE ACT has 5 main Titles, each targeting various areas of retirement and financial reform. Below are highlights from each section.
TITLE I--EXPANDING AND PRESERVING RETIREMENT SAVINGS
The SECURE Act will bring big changes to small business retirement planning. Small business owners can now join with other, unrelated business owners in a pooled employer plan.
In addition, if one employer in a multiple employer retirement plan (MEP) fails, the other plans will continue. The assets of the failed plan will transfer to another plan in the group.
The Act simplifies and modernizes the 401(k) system, defining a highly compensated employee, offering student loan debt repayment and emergency savings, and updating the Safe Harbor rules.
Individuals age 70 ½ or older can now contribute to Individual Retirement Accounts (IRAs). The age for required minimum distributions (RMDs) is now 72 instead of 70 ½, for those who are not 70 ½ by the end of 2019.
Long-term, part-time employees can participate in retirement savings. The Act defines these individuals as “employees who work at least 500 hours in 3 consecutive 12-month periods and have reached age 21.”
Individuals can make penalty-free withdrawals from their retirement plan to cover childbirth or adoption related expenses.
TITLE II--ADMINISTRATIVE IMPROVEMENTS
Employers adopting a retirement plan before the tax return filing deadline can be treated as adopted as of the last day of the taxable year.
Benefit statements to contribution plan participants must include a “lifetime income disclosure” at least once during any 12-month period. The lifetime income disclosure is an illustration meant to show how much monthly income their retirement savings will provide.
TITLE III--OTHER BENEFITS
529 Education Savings accounts can be used to cover costs associated with registered apprenticeships, student loan repayments, and certain costs associated with elementary and secondary education.
TITLE IV--REVENUE PROVISIONS
All distributions from defined contribution plans and IRA balances must be made by the end of the 10th year after the account holder’s death. This excludes distributions made to certain eligible designated beneficiaries.
The penalty for failure to file is increased to the lesser of $400 or 100% of the amount of the tax due, and the penalties for failure to file retirement plan returns are increased.
TITLE V--TAX RELIEF FOR CERTAIN CHILDREN
Unearned income of children will be taxed at the parents’ marginal tax rates instead of rates applicable to trusts and estates.
If you have questions about your current retirement savings, reach out to your financial advisor or the company administering your retirement plan with questions or concerns. The future is uncertain, but you can still move forward prepared to make the decisions best for your individual circumstances.
This is a high-level overview of the Act and its provisions. Click here to read a full summary of the SECURE Act or here to read the Act in its entirety.
For information on the annuity retirement options that ManhattanLife offers,give us a call at (800) 247-2045. We can get you in touch with a licensed producer to go over an annuity retirement solution that works for you.