By Ryan Compeau
The Secure Act (Setting Every Community Up for Retirement Enhancement Act) was passed by Congress in December 2019. Enacted due to the drastic decrease in employers offering pension plans in the private sector. Only 13% of Americans in the private sector are offered pension plans. A study by Northwestern Mutual in 2018 showed that one in five Americans have zero retirement savings, while one in three nearing retirement have $25,000 or less saved for retirement. Millennials on average have significantly fewer savings for retirement; coupled with a longer life expectancy, many experts believe America is bound to have a retirement savings crisis. Therefore, Congress passed the Secure Act of 2019 which includes a wide array of financial benefits to help the middle class and small businesses save for retirement.
The Secure Act makes it more affordable for small businesses to offer their employees 401(k) plans by increasing the maximum tax credit for startup plans from $500 to $5,000. Additional tax credits are available for small employers who set up automatic enrollment. Previously only full-time employees were eligible for retirement benefits, now these benefits are expanded to long-term part-time employees.
American’s are now given more freedom to withdraw from retirement and 529 accounts. You can now withdraw, penalty-free, up to $5,000 from your retirement plan upon the birth or adoption of a child. And $10,000 may now be withdrawn from 529 education-savings plans for the repayment of certain student loans. These financial concepts have been implemented to keep American’s out of debt and begin saving for retirement at an earlier age.
The minimum age for the required minimum distribution (RMD) from retirement accounts increases from 70 ½ to 72. While repealing the maximum age for traditional IRA contributions. Now any individual earning income will be eligible to make contributions to their traditional IRA.
Implementation of the Secure Act will greatly reduce government revenue. Revenue that will be offset by the removal of the “stretch” IRA option for non-spouse beneficiaries. Previously, a non-spouse beneficiary of an inherited IRA must take required minimum distributions (RMDs) based on your life expectancy. Beginning in 2020 most non-spouse beneficiaries of an IRA will be required to withdraw all retirement funds within 10 years. These changes could be financially harmful to many American’s who have set up estate plans intended to distribute funds for more than 10 years. Important clauses may not be deemed legally enforceable, creating a whirlwind of issues to your estate plan. It is important to have an estate plan set up, but with the implementation of the Secure Act it’s also important to have an estate planning attorney look over outdated estate plans.
The Secure Act is a wonderful piece of legislation and a great start, but more needs to be done. With fewer pensions available to the private sector, American’s must make a financial transition to relying more on their own savings throughout retirement. It is on each of us as American’s to understand what lies ahead and to understand change may be required to keep yourself and your family financially secure for the future.
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