How The SECURE Act Affects You

Are you afraid of outliving your money in retirement? If you said yes, you’re not alone. Running out of money is the number-one fear people have as they transition into retirement. (1) With life expectancy and cost of living on the rise, policymakers and employers understand they need to start helping retirees manage their money. 

Back in May 2019, the House of Representatives passed the Setting Every Community Up for Retirement Enhancement (SECURE) Act. This was passed with bipartisan support by a count of 417-3. On December 20, 2019, President Trump signed the bill into law, making it easier for retirees to have a reliable stream of income that lasts through retirement—exciting news for the many Americans who are concerned about stretching their retirement dollars. 

While the SECURE Act bill proposes over 20 changes, here are 6 major changes that will affect you if you have an IRA or 401(k).

1. No IRA Age Limit

Under the current law, you can’t contribute to an IRA account past the age of 70½ (a major deterrent for those who are still working later in life). (2) Under the SECURE Act, this age cap would be removed.  

2. Required Minimum Distribution (RMD) Age Raised To 72

Currently, people who have money in 401(k)s or other tax-deferred plans must start making required minimum distributions (RMDs) at age 70½, even if they’re still in the workforce. (3)

If you turn 70½ in 2020 or later, under the SECURE Act bill, the new mandatory withdrawal age would be 72. This is helpful for those who are still working or are trying to stretch out their savings for a longer retirement. Please note that if you turn 70½ in 2019 or earlier, you are still required to take your RMDs as previously required.

3. New Additional Plan Features

The new law would require employers to list a participant’s projected monthly retirement income on their 401(k) statements. This projected monthly income would be based on their current account balance and would give plan participants time to adjust their savings rate and better prepare for retirement.  

The bill would also allow new parents to make a penalty-free withdrawal of up to $5,000 from their retirement account within the first year of their child’s birth or adoption. This money could then be used to cover child-related expenses.

Under the SECURE Act, long-term part-time workers would be able to finally take part in 401(k) plans. This is great news for women who disproportionately take on part-time work to care for children and aging parents.  

4. More Annuity Options

Annuities are a type of insurance that guarantees a monthly income in retirement. They’re usually part of pension plans. Annuities aren’t popular 401(k) options because employers can be sued if the insurance company goes out of business or fails to pay a claim. 

Under the SECURE Act bill, the liability would be removed from the employer. This means more employers could offer annuities to their employees without having to worry about being held liable for unpaid claims. The benefit to you is that you get more options to diversify your retirement income through different types of investments. 

5. Lifetime-Income Provision

There’s plenty of advice on how to accumulate wealth using various retirement plan accounts, but no one really talks about how to manage your wealth once you retire. The new lifetime-income provision, coupled with annuities, is designed to help ensure retirees don’t outlive their money. 

6. Changes To Inherited Retirement Accounts

Under the current law, inherited retirement account distributions can be spread out over the recipient’s lifetime. Under the SECURE Act, a recipient would be required to withdraw the money—and pay taxes on it—within a 10-year period. 

This doesn’t affect those who inherit smaller accounts. But for those who inherit larger accounts, taxes will have to be paid over a shorter amount of time, which means a higher tax bill. And for those who inherit an account in their prime earning years, their tax burden will increase even more, decreasing the value of the account. Surviving spouses and minor children are exempt from this rule. 

Next Steps

If you’re concerned about how the SECURE Act will affect your path to retirement, we’re here to help. At HFG Wealth Management, we help you make what you’ve saved last the rest of your life so you can live out your retirement the way you want, and pass on your money to your family without worry. To learn more about what we do or to request a complimentary consultation, give us a call at 832-585-0110, email us at info@hfgwm.com, or contact us online

About HFG Wealth Management

HFG Wealth Management, LLC is an independent financial planning and wealth advisory firm serving individuals, families, and business owners in The Woodlands, Beaumont and the Port Arthur area, and nationwide. HFG is committed to building meaningful relationships with clients that seek to span time and generations, helping clients live the lives they desire while also helping achieve their financial goals. Founder and CEO Larry A. Harvey, ChFC, with 35 years of experience and leading a team of experienced financial planning and support professionals, takes a highly personalized approach to financial guidance. HFG Wealth Management has integrated the complexity of financial life planning and investment management services into a customized wealth management offering. HFG is committed to keeping clients balanced, yet seeks to be flexible in response to constantly changing market conditions, all while providing ongoing support to help clients maintain a disciplined approach to realizing their financial objectives. To learn more about HFG Wealth Management, connect with them on LinkedIn.

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(1) https://transamericacenter.org/docs/default-source/retirement-survey-of-workers/tcrs2019_sr_what_is_retirement_by_generation.pdf

(2) https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-limits

(3) https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-required-minimum-distributions

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