President Donald Trump signed the Setting Every Community Up for Retirement Enhancement (SECURE) Act in December as part of the government’s spending bill, and it became law on January 1. The largest retirement planning bill since the Pension Protection Act of 2006, the act addresses the grim outlook for many workers who don’t have access to workplace retirement plans.

This new legislation brings several changes to long-term
retirement savings and affects Americans at every age in the following ways:

Increased the Minimum
Distribution and Contribution Age

Prior to the SECURE Act, qualified account holders such as
those with a 401(k) or IRA were required to begin taking withdrawals, known as
required minimum distributions (RMDs), by April 1 of the year after turning age
70 ½. The SECURE Act increased that age to 72. 
This allows these account owners to defer paying tax on these funds
while, hopefully, they continue growing.

However, Americans who turned 70 ½ in 2019 are required to
take their RMDs this year. People who turn 70 ½ in 2020 will not be required to
take their RMDs until they are 72.

This bill also eliminates the maximum age for traditional
IRA contributions, which was previously capped at 70 ½.  The SECURE Act allows you to continue
contributing to your IRA at any age as long as you are still working. In 2020,
the maximum contribution is $6,000, or $7,000 if you are 50 or older. If you
and your spouse are 71 or older in 2020 and still working, you each can contribute
$7,000 to an IRA in each of your names or $14,000 total.

Inherited Retirement
Account Distributions Must Be Taken Within 10 Years

Prior to the SECURE Act, beneficiaries of an inherited IRA
or 401(k) could stretch out the withdrawals and required tax payments on each
distribution over their life expectancy. Now, non-spousal beneficiaries of
account holders who pass away after Jan. 1, 2020 may be required to withdraw
all assets in the inherited IRA or 401(k) within 10 years.  However, there are several exceptions to this
10-year rule so it’s best to discuss this change in detail with your
financial/tax planner.

Penalty-Free
Withdrawals for New Parents

Before the new law was in place, if you took a withdrawal
from your IRA or 401(k) before 59 ½, the amount withdrawn would typically be
subject to income tax as well as a 10 percent penalty. Although the IRS allows
penalty-free early distributions from certain types of retirement accounts for
certain circumstances, like an expensive medical emergency or to purchase
health insurance after the loss of a job, the SECURE Act adds another exception
to the list. You are now allowed a $5,000 withdrawal from an IRA or 401(k)
without paying a penalty for the birth or adoption of a child, and you can
repay the funds as a rollover contribution.

More 401(k) Options

The SECURE Act has provisions to make 401(k) plans a less
costly option for small firms.  It
encourages small businesses to offer 401(k) plans to its employees by utilizing
tax credits to offset some of the costs.

In addition, the new law offers workers more choices when
deciding how to invest their money in their employer-sponsored 401(k)s. The
SECURE Act allows employees more guaranteed lifetime income options, or
annuities, in their 401(k).

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

Prior to the SECURE Act, part-time employees had to work at
least 1,000 hours during a 12-month period to be able to contribute to a 401(k)
plan. Under the new law, employees who work at least 500 hours in a 12-month
period for three consecutive years and are 21 or older can contribute.

The SECURE Act has brought sweeping retirement changes.
However, it’s not the silver bullet. The law brings both positives and
negatives. Because many of these changes are complex and have long-term
financial consequences, it’s important to speak to a qualified tax and
financial professional to determine how the act will impact your overall
retirement plan and what is the best strategy for your particular situation.