January 2, 2020
SECURE Retirement Act: What Business Owners and Investors Need to Know
The SECURE Retirement Act was passed on December 20, 2019 and will become law on January 1, 2020. There are important and sweeping changes to the retirement landscape that will promote certain actions and discourage others. Here is a quick overview of some key points that business owners and investors should be aware of:
- The Act allows part-time employees who have worked 500 hours for each of the last 3 years to be eligible for the 401(k) plan. Your Accountant and 401(k) advisor should be reviewing your census to see which employees will be impacted by this change.
- A tax credit of up to $5,000 for starting a 401(k) plan or SIMPLE plan. This is up from $500. This is a major increase and an incentive to start a retirement plan.
- A Tax Credit of up to $500 to offset the cost of starting a 401(k) plan or SIMPLE plan with auto enrollment. Auto enrollment will continue to be a key feature in retirement plans as more and more Americans are responsible for their retirement savings.
- Multiple Employer Plans (MEPs) for small business. The Act widens access to MEPs. Employers no longer need to have a “common characteristic” of being in the same industry. Look for fees to come down for smaller plans.
- Annuities in 401(k) plans. Allows employers to offer annuities as investment options. The benefit would be that an annuity could provide guaranteed income over a participant’s life. The downside is that annuities are complex and often costly. The wrong choice could be harmful to a participant’s portfolio.
1. Removal of the age limit for IRA contributions. Contributions are now allowed passed age 70 as long as the IRA owner has earned income.
2. The age of required minimum distributions is raised from 70 ½ to 72. This was passed to acknowledge that more and more Americans are working longer and want to delay forced retirement withdrawals.
3. Closing the “Stretch IRA” strategy. Previously, if an investor left his or her IRA to anyone other than a spouse, the IRA had to be distributed over that beneficiary’s lifetime. This made the Stretch IRA a great estate planning tool. Now, non-spousal beneficiaries will have to take the IRA distributions over 10 years. This is an area that may require a much more in-depth review of estate and tax planning strategies.
a. The 10 year distribution requirement may put beneficiaries in a much higher tax bracket.
b. IRA’s that had trusts as beneficiaries will probably not make sense anymore.
c. Investors may want to consider a Roth conversion to pay taxes at today’s low rates.
d. It may be beneficial to make your spouse the IRA beneficiary instead of children and give children the non-IRA assets that will be “stepped-up” in basis upon death.
e. Life Insurance becomes more attractive as an estate planning technique for non-spousal inheritances.
These are just some of the provisions introduced by the SECURE Act. Overall, there are several significant changes that warrant attention and review. Business owners and investors should consult their trusted advisors to recommend action items.
Important Disclosure: This material prepared by TrinityPoint Wealth, LLC is for informational purposes only and is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy or investment product. Facts presented have been obtained from sources believed to be reliable. TrinityPoint Wealth, however, cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. TrinityPoint Wealth does not provide legal or tax advice, and nothing contained in these materials should be taken as legal or tax advice.