While there has understandably been much focus on coronavirus-related legislation such as the CARES Act, Floridians who continue to save as part of their retirement planning should be aware of another new law, the Setting Every Community Up for Retirement Enhancement (SECURE) Act.
The SECURE Act includes a variety of provisions that can affect your retirement planning, including new rules to give you more time to contribute to retirement plans. Small businesses, too, received incentives to enhance the retirement plans they offer to employees.
Saving into Retirement Accounts Longer
The SECURE Act raised the age you must start taking required minimum distributions (RMDs). Instead of starting withdrawals at age 70 ½, anyone born after June 30, 1949, can wait until age 72 to begin RMDs.
That means you can let your investments grow a bit longer within tax-advantaged accounts like IRAs and 401(k)s. Even though Florida has no state income tax, Uncle Sam will want a portion of your RMDs in the form of income tax. The new RMD age rules may offer increased tax planning opportunities, such as IRA-to-Roth-IRA conversions.
On a related note, the CARES Act waived RMDs for 2020. As the value of your portfolio has probably fallen along with the market, this change means you won’t have to sell investments when their value is at a low point just to make your RMD.
The SECURE Act also removed the age limit on contributing to traditional and Roth IRAs. Previously, you could no longer contribute once you reached 70 ½. Now you can continue to contribute to these accounts at any age as long as you are working.
Incentivizing Small Businesses
In the past, some small businesses may have avoided setting up retirement savings plans due to cost, complexity, and compliance concerns.
The SECURE Act includes changes that can make it more appealing for employers to offer retirement plans and encourage employees to save toward their future. Those changes include:
Increasing the tax credit for retirement plan startup costs to as much as $5,000, up from $500.
Providing a $500 tax credit for three years if employers automatically enroll new employees in retirement savings plans. The law also raises the auto-enrollment cap from 10% up to 15% of an employee’s paycheck.
Facilitating multiple-employer plans (MEPs), in which multiple small businesses can reduce retirement plan costs by banding together. While MEPs were already permitted, the SECURE Act relaxes some requirements.
Eliminating the Stretch IRA
While many of the SECURE Act provisions can enhance retirement planning, not all the changes are as positive for every retirement saver. For example, the law eliminated the so-called stretch IRA, which allowed you to inherit an IRA and then “stretch” the distributions over your lifetime.
Now, most non-spouse beneficiaries who inherit an IRA will have 10 years to empty the account, potentially affecting their income taxes. So Floridians who were considering leaving an IRA to their children or grandchildren, for example, may want to talk to their financial advisor to determine whether another estate planning strategy will be more beneficial.
See How the SECURE Act Affects Your Retirement Planning
While these are some of the prominent changes legislated by the SECURE Act, the law has a range of provisions that can affect individuals and small business owners differently, depending on factors such as your age and employment status.
If you are concerned about how the act affects you specifically, consider talking with a financial advisor who will help you understand the changes in light of your entire financial situation and goals. As a fee-only, fiduciary financial planner in Plantation, FL, we have been helping our clients adjust their financial strategies accordingly.
Schedule a complimentary consultation with one of our fee-only financial planners to discuss your personal situation.
This material was prepared by Kaleido Inc. from information derived from sources believed to be accurate. This information should not be construed as investment, tax or legal advice.