News and Commentary

SECURE Act Makes Significant Changes to Retirement Saving Strategies by Sean Deviney, CFP

Congress handed U.S. taxpayers a year-end gift on Dec. 19, 2019, in the form of a new law intended to help taxpayers save more money for retirement while giving them more flexibility in how and when they use those funds over their lifetimes.

Here are the details of what is included in the Setting Every Community Up for Retirement Enhancement (SECURE) Act and how it may affect you.

Raises the Age for Required Minimum Distributions from Tax-Deferred Accounts

Taxpayers may now wait until the year they turn 72 before they must begin taking annual required minimum distributions (RMDs) from their tax-deferred retirement accounts, such as 401(k)s and traditional individual retirement accounts (IRAs). Under prior law, individuals were required to begin taking taxable RMDs at age 70½.

This change, which applies to taxpayers who turn 70½ after Dec. 31, 2019, is welcome news to high-net-worth individuals who may not need to tap into these savings accounts for financial support in retirement. Instead, individuals may defer income taxes on these distributions for an additional one-and-a-half years. As an added bonus, the new law eliminates the age cap on IRA contributions, allowing individuals who are still working after age 70½ to continue to earn income and save money without incurring immediate tax liabilities.

Expands Retirement Savings Opportunities to Part-Time Workers

Beginning in 2021, part-time employees who have worked at least 500 hours per year over the past three years will be eligible to participate in a 401(k) plan sponsored their employers, provided they are at least 21 years old at the end of the three-year period. Previously, participation in these plans was limited to full-time employees who worked more than 1,000 hours each year. Employers will not be required to offer the same matching contributions to part-time employees as they provide to their full-time colleagues.

Improves Small Business Access to Workplace Retirement Plans

Less than 40 percent of private-sector workers in the U.S. have access to retirement savings plans at their place of employment. The SECURE Act aims to change this, beginning in 2021, by allowing unrelated small businesses to pool together their resources and create an open, multiple employer plan (MEP) with one centralized level of administration and governance to serve the needs of all of the participating companies’ employees. This will not only expand employee access to retirement savings plans, it will also help the nation’s small businesses compete when it comes to attracting and retaining top talent.

To encourage more businesses to adopt retirement plans, the new law increases the tax credit available to small businesses that set up workplace retirement plans to a maximum of $5,000 annually for three years. It was previously limited to $500 per year. In addition, the law introduces a new $500 tax credit per year for three years for those small businesses whose plans include an automatic enrollment feature.

Increases Automatic Enrollment Contribution Limits

Employers whose retirement plans utilize auto-enrollment and auto-escalation safe harbor features may now increase the default employee contribution from 3 percent of salary to 6 percent in the first year and as much as 15 percent beginning in the worker’s second year of employment. Previously, employers could not set a plan participant’s automatic contribution to an amount exceeding 10 percent in any year.

Introduces Guaranteed Income Annuities as Investment Options

The SECURE Act opens the door for 401(k) plan sponsors to minimize their exposure to legal risks when they offer annuities as an investment option for plan participants. Under the new law, plan fiduciaries can rely on a safe harbor when selecting an annuity provider for the plan, greatly reducing their liability for that selection. In addition, the new law will make it easier for employees to bring their annuities with them when changing jobs. While annuities may offer the promise of guaranteed income for the remainder of a retiree’s lifetime, they are not without complexity, risks and fees, for which investors should seek professional financial counsel.

Allows Penalty-Free Early Withdrawals for a Child’s Birth or Adoption

Participants in employer-sponsored 401(k) plans and IRAs have up to one year following the birth of a child or adoption of a child younger than 18 years old to take $5,000 per spouse from their individual plans without incurring a 10 percent early-withdrawal penalty. However, income taxes will still be due on the distributed amount.

You have one year from the date your child is born or the adoption is finalized to withdraw the funds from your retirement account without paying the 10% penalty. You can also put the money back into your retirement account at a later date. Recontributed amounts are treated as a rollover and not included in taxable income.

Forces Faster Withdrawals from Inherited IRAs

Under the SECURE Act, individuals who inherit a tax-advantaged retirement account from a non-spouse decedent, will be required to empty that account within 10 years of the original owner’s death and pay the taxes due. No longer will beneficiaries be able to allow savings in an inherited IRA continue to grow tax-free for distributions that they may stretch out over their lifetimes. The only exceptions to these new rules apply to IRAs inherited by a surviving spouse, a minor child under the age of majority (18 in Florida) or a dependent that is disabled, chronically ill or less than 10 years younger than the deceased IRA owner.

With the passage of the SECURE Act, businesses that sponsor 401(k) plans or other retirement savings vehicles for the benefit of their employees should not delay meeting with their plan administrators to ensure that plan documents are updated to reflect the changes in the law.

As Americans’ life expectancy continues to increase, individuals must plan earlier to implement strategies that aim to make their assets last for longer periods of time during their retirement years. The professionals with Provenance Wealth Advisors (PWA) work with businesses of all sizes to create, manage and assess the performance of employer-sponsored benefit plans that educate workers and help them to save for their retirement years.

About the Author: Sean Deviney is a CFP®* professional, a retirement plan advisor and a director with Provenance Wealth Advisors (PWA), an independent financial services firm affiliated with Berkowitz Pollack Brant Advisors + CPAs. For more information, call (954) 712-8888 or email info@provwealth.com.

Provenance Wealth Advisors, 515 E. Las Olas Blvd., Ft. Lauderdale, FL 33301 (954) 712-8888.

Sean Deviney is a registered representative of and offers securities through Raymond James Financial Services, Inc., Member FINRA/SIPC.  Raymond James is not affiliated with and does not endorse the opinions or services of Berkowitz Pollack Brant Advisors + CPAs.  PWA is not a registered broker/dealer and is independent of Raymond James Financial Services. Investment Advisory Services offered through Raymond James Financial Services Advisors, Inc., and Provenance Wealth Advisors.

This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of PWA and not necessarily those of Raymond James. You should discuss any tax or legal matters with the appropriate professional. The information contained in this report has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete.

401(k) plans are long-term retirement savings vehicles. Withdrawal of pre-tax contributions and/or earnings will be subject to ordinary income tax and, if taken prior to age 59 1/2, may be subject to a 10% federal tax penalty. Investments mentioned may not be suitable for all investors. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct.

* Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™ and federally registered CFP (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.


Need More Information?