The SECURE Act and Impact on Retirement Planning

Saving for retirement is something that every individual needs to tackle especially during the prime earning years. Ensuring there is enough money available to fund spending in retirement is a necessity since the benefits offered through social security are simply insufficient to the task. While it sounds logical, there are several obstacles that have made it more difficult for retirement savings to occur. For example, a study conducted by the Pew Charitable Trusts, reveals that 25% of those working in the private sector do not have access to a retirement plan because it’s not offered by their employer. This is unfortunate because it has been estimated by AARP that given the opportunity, workers are 15 times more likely to save when plans are offered. To help address the situation, the President recently signed the Securing Every Community Up for Retirement Enhancement (SECURE Act) into law on December 20^th. The Act implements changes that make plan participation and saving opportunities more accessible to workers. To help clients, prospects and others, aware of the changes and potential impact, Wilson Lewis has provided a summary of key points below.

Key SECURE Act Changes

Expanded Retirement Plan Access & Benefits

• There is now a maximum tax credit of $500 per year to companies that create a 401(k) or SIMPLE IRA plan with an automatic enrollment feature.
• Part-time employees that have three consecutive years with 500 hours are now permitted to participate in employer-sponsored retirement plans.
• There was a change to the age plan participants are required to take required minimum distributions (RMDs). Under the prior law, these distributions were required starting at age 70 ½ but have now been extended to 72. This applies only to participants that did not reach the age of 70 ½ by the end of 2019.
• Participants in 529 plans are now permitted to use plan funds to repay student loans of up to $10,000 annually.
• The age cap restricting certain individuals from making contributions to Individual Retirement Accounts (IRAs) has been eliminated.
• There is now a penalty-free option to withdrawal up to $5000 from a 401(k) account to manage expenses related to having a child or adopting one.
• STRETCH IRA plans have been eliminated. The new law requires non-spouse beneficiaries to withdrawal all the funds from an inherited IRA within 10 years of the death of the original IRA owner.

Important Tax Changes

• The new law extends many tax credits including the Work Opportunity Tax Credit, credits for energy-efficient homes and credits for health insurance costs for eligible individuals.
• In addition to extensions, several taxes created under the health care reform of 2010 have been repealed. This includes the medical device tax and the 40% tax on high-cost health insurance plans (Cadillac Tax).
• The tax rate on investment income on private foundations has decreased to 1.39%.
• The transportation fringe benefits tax imposed on tax-exempt organizations by tax reform has been eliminated.

Contact Us

Many of the changes implemented by the SECURE Act are designed to increase participation in retirement plans and expand saving opportunities. Atlanta area employers may want to determine if now is the time to offer a retirement plan for employees. If you have questions about the SECURE Act or need assistance with a retirement planning or tax issue, Wilson Lewis can help. For additional information call us at 770-476-1004 or click here to contact us. We look forward to speaking with you soon.