The SECURE Act (Setting Every Community Up for Retirement Enhancement Act) is major legislation that was passed by Congress as part of a larger spending bill and signed into law by the president in December. There are a few provisions that may affect you. Unless otherwise noted, the new rules apply to tax or plan years starting January 1, 2020.
If you’re saving for retirement
To address increasing life expectancies, the new law repeals the prohibition on contributions to a traditional IRA by someone who has reached age 70½. Starting with 2020 contributions, the age limit has been removed, but individuals must still have earned income.
If you’re not ready to take required minimum distributions
Individuals can now wait until age 72 to take required minimum distributions (RMDs) from traditional, SEP, and SIMPLE IRAs and retirement plans including the TSP instead of taking them at age 70½. (Technically, RMDs must start by April 1 of the year following the year an individual reaches age 72 or, for certain employer retirement plans, the year an individual retires, if later.)
If you're adding a child to your family
Workers can now take penalty-free early withdrawals of up to $5,000 from their qualified retirement plans and IRAs to pay for expenses related to the birth or adoption of a child. (Regular income taxes still apply.)
If you're paying education expenses
Individuals with 529 college savings plans may now be able to use account funds to help pay off qualified student loans (a $10,000 lifetime limit applies per beneficiary or sibling). Account funds may also be used for qualified higher-education expenses for registered apprenticeship programs. Distributions made after December 31, 2018, may qualify. Keep in mind that there are generally fees and expenses associated with 529 savings plan participation. Investments may lose money or not perform well enough to cover college costs as anticipated. In instances where withdrawals were not used for qualified higher-education expenses, the earnings may be subject to taxation as ordinary income and possibly a 10% federal income tax penalty.
If you're working part-time
Part-time workers who log at least 500 hours in three consecutive years must be allowed to participate in a company's elective deferral retirement plan. The previous requirement was 1,000 hours and one year of service. The new rule applies to plan years beginning on or after January 1, 2021.
Calculating the Cost of Retirement
Regardless of your age or how many years you have before you’re eligible to retire, we have a simple worksheet that you can use to determine if you are on track. Assessing your situation and funding sources will give you a good indication of the lifestyle you can expect during retirement. An effective retirement plan identifies your retirement goals, shows you how to take advantage of all your funding sources, and accounts for taxes and inflation.
Our worksheet provides a rough estimate of the cost of retirement you may face in the future, but more importantly can help you determine if you are on track to meet your income needs as well as what additional savings requirements you need to set aside to put you back on track.
Send us an email if you would like to receive this complimentary worksheet at [email protected].
James De La Torre has conducted federal benefit and financial planning seminars all over the country. He is a keynote speaker at federal conferences and works with federal professional organizations on ways to improve the communication of federal benefits to their membership. Jim has appeared as a guest on “Fed Talk” on the Federal News Radio network, discussing the gaps in federal benefits and the financial impacts employees face. Jim holds a Charter Retirement Planning Counselor’s (CRPC) designation from the College or Financial Planning and is a member of the Financial Planning Association. Please direct questions or comments to James at [email protected].
If you’re saving for retirement
To address increasing life expectancies, the new law repeals the prohibition on contributions to a traditional IRA by someone who has reached age 70½. Starting with 2020 contributions, the age limit has been removed, but individuals must still have earned income.
If you’re not ready to take required minimum distributions
Individuals can now wait until age 72 to take required minimum distributions (RMDs) from traditional, SEP, and SIMPLE IRAs and retirement plans including the TSP instead of taking them at age 70½. (Technically, RMDs must start by April 1 of the year following the year an individual reaches age 72 or, for certain employer retirement plans, the year an individual retires, if later.)
If you're adding a child to your family
Workers can now take penalty-free early withdrawals of up to $5,000 from their qualified retirement plans and IRAs to pay for expenses related to the birth or adoption of a child. (Regular income taxes still apply.)
If you're paying education expenses
Individuals with 529 college savings plans may now be able to use account funds to help pay off qualified student loans (a $10,000 lifetime limit applies per beneficiary or sibling). Account funds may also be used for qualified higher-education expenses for registered apprenticeship programs. Distributions made after December 31, 2018, may qualify. Keep in mind that there are generally fees and expenses associated with 529 savings plan participation. Investments may lose money or not perform well enough to cover college costs as anticipated. In instances where withdrawals were not used for qualified higher-education expenses, the earnings may be subject to taxation as ordinary income and possibly a 10% federal income tax penalty.
If you're working part-time
Part-time workers who log at least 500 hours in three consecutive years must be allowed to participate in a company's elective deferral retirement plan. The previous requirement was 1,000 hours and one year of service. The new rule applies to plan years beginning on or after January 1, 2021.
Calculating the Cost of Retirement
Regardless of your age or how many years you have before you’re eligible to retire, we have a simple worksheet that you can use to determine if you are on track. Assessing your situation and funding sources will give you a good indication of the lifestyle you can expect during retirement. An effective retirement plan identifies your retirement goals, shows you how to take advantage of all your funding sources, and accounts for taxes and inflation.
Our worksheet provides a rough estimate of the cost of retirement you may face in the future, but more importantly can help you determine if you are on track to meet your income needs as well as what additional savings requirements you need to set aside to put you back on track.
Send us an email if you would like to receive this complimentary worksheet at [email protected].
James De La Torre has conducted federal benefit and financial planning seminars all over the country. He is a keynote speaker at federal conferences and works with federal professional organizations on ways to improve the communication of federal benefits to their membership. Jim has appeared as a guest on “Fed Talk” on the Federal News Radio network, discussing the gaps in federal benefits and the financial impacts employees face. Jim holds a Charter Retirement Planning Counselor’s (CRPC) designation from the College or Financial Planning and is a member of the Financial Planning Association. Please direct questions or comments to James at [email protected].