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Congress Just Passed the Biggest Bill in a Decade – The SECURE Act: 7 Things You Need to Know

On December 19th, the Senate passed the most sweeping retirement bill since the Pension Protection Act of 2006. The SECURE Act, whose progress had stalled until lawmakers tacked it onto a spending bill to keep the country running, aims to make saving easier amongst a bevy of changing rules. The House already passed the legislation, and President Donald Trump is expected to sign the bill into law. So, how does that impact you, your money, and how you will be able to save money for the future?  Does it mean you will pay more taxes?  Here are seven things you need to know about the Secure Act.

(some excerpts are from Yahoo Finance)

SECURE Act #1:  RMD’s Are Changing

Starting January 1, 2020, the new bill pushes the age at which you need to start withdrawing money from your traditional retirement accounts from age 70½ to age 72. These required minimum distributions, as they’re called, are Uncle Sam’s way of finally getting his share of your retirement savings that have grown tax-free for decades. Many retirees need the money from their retirement accounts to live on, so they’re already withdrawing a portion and paying taxes on it before the government requires them to do so. But those who don’t need the money and aren’t yet 70½ will now have more time before that requirement kicks in.

Those who are currently 70½ or older should not interrupt their RMDs but proceed with them as scheduled under current rules, Townsend says. Those who turn 70½ on or after January 1, 2020, are subject to the new rules and will have an extra year and a half before they need to start withdrawals.

SECURE Act #2: Seniors…. Keep on Saving

The law will allow you to contribute to your traditional IRA in the year you turn 70½ and beyond, provided you have earned income. This is currently prohibited (although there’s no age cap on contributing to a Roth IRA).

Working past the traditional retirement age of 65 is a great way to shore up your retirement savings. More baby boomers will likely do this if they can, so it makes sense to allow them to continue to save in their traditional IRA and enjoy the tax deduction. “That’s a no-brainer if you’re still working,” Hubble says.

SECURE Act #3: You REALLY Need to Plan Your Inheritance Money Better

The bill essentially eliminates the “stretch IRA,” an estate planning method that allows IRA beneficiaries to stretch their distributions from their inherited account — and the required tax payments on them — based on their life expectancy. If you named your grandchild as your beneficiary, for example, most of your account can stay invested for decades past your death and your grandchild could continue to reap the tax benefits. But under the new law, most beneficiaries will have to withdraw all the distributions from their inherited account and pay taxes on it within ten years. Exceptions are made for certain beneficiaries, including spouses and those who are chronically ill or have a disability.

This provision is not retroactive and will not affect those who have already inherited an IRA, but it will apply to those who inherit them starting on January 1, 2020 and may affect the estate planning of those planning to pass on an IRA to a non-spouse.

SECURE Act #4: Annuities Coming to a 401(K) Near You Soon…. So Sorry Ken Fisher!!!

It’s pretty straightforward to save for retirement in a 401(k), but it’s another matter to calculate how to turn your life savings into a sustainable income stream once you’ve retired. Annuities are insurance products that help with this complicated task by turning a lump sum into lifetime guaranteed income. However, many companies have hesitated to offer them in their 401(k) plan for fear that they could be held liable if something bad happens with the insurer. The bill gives increased legal cover to employers and experts expect it to open the way for more annuity options in 401(k) plans.

SECURE Act #5: Part-Time Workers Can Jump for Joy

Part-time workers need to save for retirement, too. However, employees who haven’t worked at least 1,000 hours during the year typically aren’t allowed to participate in their employer’s 401(k) plan.

That will change under the SECURE Act. Once enacted, it will guarantee 401(k) plan eligibility for employees who have worked at least 500 hours per year for at least three consecutive years. The part-timer will also have to be 21 years old by the end of the three-year period. The rule won’t apply to collectively bargained employees, though.

SECURE Act #6: Penalty-Free Withdrawals From an IRA If You Have a New Child

Congratulations if you have a new baby on the way or if you are about to adopt a child! Right after you pass out the cigars, you’ll probably start worrying about how you’re going to pay for the birthing or adoption costs. If you have a 401(k), IRA or another retirement account, the SECURE Act will let you take out up to $5,000 following the birth or adoption of a child without paying the usual 10% early-withdrawal penalty. You’ll still owe income tax on the distribution, though, unless you repay the funds. If you’re married, each spouse will be able to withdraw $5,000 from his or her own account, penalty-free. Although using retirement funds for childbirth or adoption expenses will obviously reduce the amount of money available in retirement, some lawmakers believe this SECURE Act provisions will encourage younger workers to start funding 401(k)s and IRAs earlier.

SECURE Act #7: Law, Grad, and Doctor Students Get a Big Win

Contributions to a retirement account generally can’t exceed the amount of your compensation. So, if you receive no compensation, you generally can’t make retirement fund contributions. Under current law, graduate and post-doctoral students often receive stipends or similar payments that aren’t treated as compensation and, therefore, can’t provide the basis for a retirement plan contribution. Similar rules and results apply to “difficulty of care” payments that foster-care providers receive through state programs to care for disabled people in the caregiver’s home.Once the SECURE Act becomes law, amounts paid to aid the pursuit of graduate or post-doctoral study or research (such as a fellowship, stipend or similar amount) will be treated as compensation for purposes of making IRA contributions. This will allow affected students to begin saving for retirement sooner. Similarly, “difficulty of care” payments to foster-care providers will also be considered compensation when it comes to 401(k) and IRA contribution requirements.

About the author  ⁄ Ted Jenkin @ Your Smart Money Moves

Ted Jenkin @ Your Smart Money Moves

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Ted Jenkin is a frequent guest columnist for the Wall Street Journal and Headline News Weekend Express. He is the co-CEO of oXYGen Financial. You can follow him on LinkedIn @ www.linkedin.com/in/theceoadvisor or on Twitter @tedjenkin.

Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. oXYGen Financial is not affiliated with Kestra IS or Kestra AS. Kestra IS and Kestra AS do not provide tax or legal advice.

The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor regarding your individual situation. 

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