By Shelley Kennedy

It might not have made the headlines but a recently passed piece of legislation could affect the individual retirement accounts and 401(k)s of millions of Americans beginning in 2020. So, if you have either of these accounts or if you run a business, you’ll want to learn more.

The new laws, collectively called the Setting Every Community Up for

Retirement Enhancement, or SECURE Act, include these noteworthy changes:

• Higher age for required minimum distributions. Under current law, you

must start taking withdrawals – known as required minimum distributions, or

RMDs – from your traditional IRA and 401(k) or similar employer-sponsored plan

once you turn 70 ½. The new law pushes the date to start RMDs to 72, which

means you can hold on to your retirement savings a bit longer.

• No age limit for traditional IRA contributions. Previously, you could

only contribute to your traditional IRA until you were 70 ½. Under the SECURE

Act, you can fund your traditional IRA for as long as you have taxable earned

income.

• Limitation of “Stretch IRA” provisions. Under the old rules,

beneficiaries were able to stretch taxable RMDs from a retirement account over

his or her lifetime. Under the SECURE Act while spouse beneficiaries can still

take advantage of this “stretch” distribution, most non-spouse beneficiaries

will have to take all the RMDs by the end of the 10th year after the account

owner passes away. Consequently, non-spouse beneficiaries who inherit an IRA or

other retirement plan could have tax implications due to the need to take

larger distributions in a shorter timeframe.

• No early withdrawal penalty for IRAs and 401(k)s when new child

arrives. Typically, you must pay a 10 percent penalty when you withdraw funds

from your IRA or 401(k) before you reach 59 ½. But now, with the new rules, you

can withdraw up to $5,000 from your retirement plan without paying the early

withdrawal penalty, as long as you take the money within one year of a child

being born or an adoption becoming final.

Some provisions of the SECURE Act primarily affect business owners:

• Multi-employer retirement plans. Unrelated companies can now work

together to offer employees a 401(k) plan with less administrative work, lower

costs and fewer fiduciary responsibilities than individual employers now

encounter when offering their own retirement plans.

• Tax credit for automatic enrollment. The new law provides a tax credit

of $500 for some smaller employers who set up automatic enrollment in their

retirement plans. And a tax credit for establishing a retirement plan has been

increased from $500 to $5,000.

• Use of annuities in 401(k) plans. It will now be easier for employers

to consider including annuities as an investment option within 401(k) plans.

Previously, many businesses avoided offering annuities in these plans due to

liability concerns related to the annuity provider, but the new rules should

help reduce these concerns.

The SECURE Act is the most significant change to our retirement savings

system in over a decade. We encourage you to contact your financial advisor,

tax professional and estate planning attorney to assess the potential impact on

your investment strategies and determine any possible tax and estate planning

implications of the SECURE Act.

Shelley Kennedy is a certified financial planner, financial advisor and

branch office administrator at Edward Jones in Richland.