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Insurable Interests
Vol.
15, Issue
6 •
February 2020
New Law Could Affect Retirement and Estate Plans
A bipartisan law that passed Congress in December has changed the landscape of retirement and estate planning. The Setting Every Community Up for Retirement Enhancement (SECURE) Act, most of which took effect Jan. 1, is designed to expand the opportunity for people across the demographic spectrum to participate more fully in saving for retirement.
The law was enacted largely in response to some concerning data on retirement savings. Many Americans, including many older Americans, are woefully unprepared for retirement. According to a U.S. Bureau of Labor Statistics report from 2018, only 58% of people participate in a workplace retirement savings plan; the average 401(k) balance for people ages 60 to 69 is $195,500, according to Bankrate. That is far below the amount experts say people will need for a comfortable retirement.
Part of the new law focuses on increasing saving through workplace plans by making it easier for employers to offer the plans and expanding plan eligibility to more people, including many part-time workers. The law also allows new parents to withdraw up to $5,000 from an IRA or a 401(k) to use for approved adoption or childbirth expenses within one year of the adoption or birth. They do not have to pay a penalty for early withdrawal, but they do have to report the withdrawal as income on their taxes.
Other parts of the law make changes to some aspects of retirement planning. For example: Beginning in tax year 2020, anyone who is working and has earned income can contribute to a traditional IRA account. Previously, contributions were not allowed after the age of 70½.
- The age at which a participant must begin taking a required minimum distribution (RMD) from an IRA is raised to 72 from 70½.
The law also makes changes to the rules surrounding inherited IRA accounts, which could be significant for estate planning.
Previously, people who inherited an IRA could spread the withdrawals from that IRA over the course of their expected lifetime. However, starting after Dec. 31, 2019, this is no longer the case for most heirs. Instead, people who inherit an IRA after Dec. 31 will have to withdraw all the money from the IRA within 10 years of inheriting it. The only exceptions are for assets left to a surviving spouse or minor child, to a person who is chronically ill or disabled, or to someone who is less than 10 years younger than the person from whom the IRA was inherited. The new withdrawal rules do not apply to people who inherited an IRA from a person who died before Jan. 1, 2020.
If you are concerned about whether or how this new law might affect you, please give us a call. At The Bensman Group, we are happy to talk with you further about the SECURE Act, or to answer any other questions about your retirement or estate planning. For more information, contact your Bensman advisor or Joel Feiger, who can be reached at 847-572-0808 or jfeiger@bensman.com.
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