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Paul Sobotta, CLU®, ChFC®, CFP®, RICP®
Financial Planner
CA Insurance Lic. #4169793
Kyle Sobotta, CFP®
Financial Planner
Prudential Advisors
205 Washington Street
Arcadia, WI 54612
Phone: 608-323-7032
Fax: 608-323-7964
Email: paul.sobotta@prudential.com
September/October 2020
Retirement and the SECURE Act
The enactment of the Setting Every Community Up for Retirement Enhancement (SECURE) Act has created a handful of tax-advantaged features retirees may appreciate. The new law allows retirement plan participants to take penalty-free distributions for a new baby, and 529 plans to pay off college loans. But the major focus of the new law is on helping Americans become more secure in retirement, and the SECURE Act does that in big ways.
Older Workers Rejoice
If you don’t want to begin taking required minimum distributions (RMDs) from an IRA at 70 ½, you don’t have to anymore provided you turn age 70 1/2 in 2020 or later. RMDs for these workers will begin at age 72.*You can also contribute to an IRA at any age, as long as you have earned income to offset contributions. Previously, this became off limits once you reached age 70 1/2. As before, you can still contribute to a company 401(k) plan at any age as long as you’re working.
Another feature of the SECURE Act has the potential to affect an even larger group of workers: part-timers. Older workers often take seasonal or part-time work to supplement their retirement income. Effective 2021, if they worked 500 hours in each of three consecutive years, their employers can make them eligible to contribute to the retirement plan.
A Lifetime of Income
The later RMD age and the ability to continue putting money into an IRA may have a positive effect on savings in two ways. First, it gives you more time to grow your retirement accounts as contributions continue to add up if you continue working. Second, whether you work or not, balances potentially grow longer and tax-deferred if you delay RMDs until you must begin taking them.The SECURE Act also requires plan sponsors to give employees lifetime income disclosures that estimate how much retirement income participants would receive if they put their balances in annuities, subject to final department of labor rules. The new law also gives employers a safe harbor when offering annuities, an option employees may prefer during volatile times.
*The CARES Act suspends the RMD requirement for 2020. Employer sponsored retirement plans may permit through plan amendment.
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