Understanding the SECURE Act
The Setting Every Community Up for Retirement (SECURE) Act. The intent of the Secure Act was to make retirement savings more accessible and easier for all individuals, including individuals who may have lower income or fewer resources. The Act became effective on January 1, 2020. Individuals are encouraged to seek advice from a Maryland estate planning attorney about how the Act may affect the current provisions in their estate plan.
Five Ways the Secure Act May Impact an Estate Plan
Your estate plan and retirement plan work together to ensure you have the income and resources you need during retirement or if you become incapacitated, as well as protect your assets and the legacy you desire to leave for loved ones. When there are changes in estate laws or retirement laws, it may be necessary to make changes to your estate and retirement plans.
The Secure Act has over two dozen provisions that impact various retirement rules, including eligibility, distributions, and contributions. Below are five provisions that may greatly affect your estate plan and retirement plan.
1. Saving Longer For Retirement
You may now continue to contribute to a Traditional Individual Retirement Account (IRA) past the age of 70 ½ years, if you continue to work beyond that age. By allowing individuals to continue contributing to an IRA if they are working, the law gives people who may not have enough money for retirement additional time to accumulate funds.
2. Changes To Inherited IRA Rules
An estate plan that includes IRAs may need to be changed. The SECURE Act now requires that an individual who inherits an IRA to distribute the funds in that IRA within ten years of inheriting the IRA. Depending on the person’s age and financial situation, this change in the rules for inherited IRAs could have significant tax implications.
There are exceptions for spouses, minor children, disabled individuals, and people who are within ten years of age of the IRA holder. It is best to consult an estate planner to review your estate plan to determine if you need to make changes to protect your heirs.
3. Changes In Rules For Required Distributions
The Act increases the age for required minimum distributions from 70 ½ years to 72 years. It only applies to individuals who turn 70 ½ years of age on or after January 1, 2020. A financial planner can assist individuals in determining whether a delay in distributions is an advantage based on other aspects of your overall retirement plan.
4. Additional 401(K) Options For Small Businesses
One problem that many people have is that they work for a small business that does not offer a 401(k) retirement plan. Many small business owners cannot afford the cost or the risk of starting a plan. However, the SECURE Act makes it easier for small businesses to provide this retirement option to their employees.
Small business owners can now work together to share the costs of starting and maintaining a 401(k) plan for their employees. It allows small business owners to work together to give their employees a valuable retirement savings tool. Also, the Act gives employees more choices in how to invest their money in their 401(k) accounts, including annuities and lifetime income options.
5. Birth And Adoption Withdrawals
The Act allows new parents to withdraw up to $5,000 from their retirement account for the adoption or the birth of a new child without the early withdrawal penalty. However, individuals should carefully consider the tax implications of withdrawing funds from their retirement accounts because the new rules only waive penalties, not tax liability, for these withdrawals.
Contact a Maryland Estate Planning Attorney for Help
It is a good idea to review your estate plan periodically. If you have questions about how recent changes in tax laws and retirement rules impact your estate plan, contact a Maryland estate planning attorney to discuss your estate plan in detail.