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Last week, the SECURE Act made its way through Congress and to the desk of the President, who signed it into law. SECURE, which stands for “Setting Every Community Up for Retirement Enhancement,” is a piece of legislation meant to improve retirement security for Americans and make it easier for employees to have access to workplace retirement accounts. Here are five parts of the law that Americans should be aware of.
Annuities in 401(k) Plans
Additional employers can now offer annuities as investment options in their 401(k) plans. Although employers previously held fiduciary responsibility for these investment products, that liability now falls on insurance companies. Annuities provide a steady stream of income over the owner’s lifetime, so employees can structure them to meet their own long-term retirement objectives. They are also complicated products, so individuals should speak with a financial advisor before choosing a plan.
Increased Age Cap for RMDs and IRA Contributions
Prior to this law, Americans were mandated to take required minimum distributions (RMDs) from their 401(k) or IRA beginning in the year they turned 70.5. The age limit is now 72, which takes into account updated life expectancy numbers. Traditional IRA contributions are now capped at age 72 instead of 70.5. This change goes into effect for Americans who will turn 70.5 in 2020.
Limit for Inherited IRA Distributions
Non-spouse beneficiaries were previously allowed to spread out inherited IRA distributions over their lifetime, but the entire account must now be distributed within 10 years. They are not required to take RMDs, but all assets must be withdrawn within 10 years of inheriting the account.
Small Business Retirement Plans
This new legislation allows small businesses to pool together for retirement plans without sharing a common characteristic, such as being a part of the same industry. Retirement plans are also now made available to long-term part-time workers who have worked one year of at least 1,000 hours or three consecutive years of 500 hours.
This law supports employee auto-enrolment by providing a tax credit to small businesses that automatically enroll their workers into retirement plans. The credit is designed to offset the costs of starting a 401(k) or SIMPLE IRA plan. People are more likely to stay in a plan than actively enroll in one themselves, so this also helps employees save for their future.
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