Congress has passed a bill that could mean big changes for your retirement savings options.
The Setting Every Community Up for Retirement Enhancement (SECURE) Act has been folded into the bipartisan appropriation package for fiscal year 2020, which President Trump is expected to sign to avert a shutdown of the federal government.
Here's how some of the changes might affect you.
- Allow you to contribute to your retirement plan longer. People are living and working longer, so the bill will allow people older than 701/2 to contribute to traditional individual retirement accounts (IRAs). The bill also pushes back the age at which you must take distributions to 72.
- Help you secure guaranteed retirement income. Employers will be able to offer annuities in their retirement plans, which means guaranteed monthly payments for you and your spouse. If you change jobs, you'll be able to take your annuity to your new employer's plan without paying fees and charges.
- Make it easier for companies to offer retirement plans. Small businesses that don't offer retirement plans will be able to join other businesses to create multiple employer plans, or MEPs. These plans should be cheaper for small companies, because they can share administrative costs. The bill also will give a new tax credit of up to $500 per year to employers to defray startup costs for new 401(k) plans and SIMPLE IRA plans that include automatic enrollment.
- Make part-time workers eligible for employer retirement plans. Currently, you need to be a full-time employee with 1,000 hours of work per year to join an employer retirement plan. The new bill would allow employees who have worked 500 hours per year for three consecutive years to join the company retirement plan. This provision starts Jan. 1, 2020.
- Significantly reduce “stretch” IRAs. Under current law, if you name your children as the beneficiaries of your retirement plan, they can spread out payments from the plan over their lifetime – hence the “stretch” nickname. The bill would put a 10-year limit on the time a beneficiary has to take withdrawals from an inherited IRA.
Spouses, people with disabilities or who are chronically ill, and minor children are exempted from the rule. Otherwise, those who fail to withdraw funds within the 10-year window would face a 50 percent tax penalty on assets remaining in the account. This provision of the new law will take effect Dec. 31, 2019. That means you should review the beneficiaries of your retirement account before the end of the year.
In a letter to the U.S. House of Representatives this week, AARP praised the inclusion of the SECURE Act in the year-end spending deal. “The SECURE Act of 2019 will make it easier for the 27 million part-time workers in the United States to save for retirement and for smaller employers to offer a retirement plan to their workers,” said Nancy LeaMond, AARP executive vice president and chief advocacy and engagement officer.