The Setting Every Community Up for Retirement Enhancement (SECURE) Act became law on January 1, 2020 after it was signed by President Donald Trump. This made a variety of changes to long-term retirement savings, with impacts on Americans of all ages. Continue reading below to learn more and contact an experienced Michigan estate planning attorney for help preparing your estate.
Required Minimum Distribution Age
Under the SECURE Act, the required minimum distribution age increased from 70 ½ to 72. In the past, you used to be required to withdraw from your traditional IRA by April 1 the year after you turned 70 ½. Moving the age to 72 allows IRA owners to defer paying tax on the funds while they continue to grow.
Age Limit for IRA Contributions
The new law removed the age limit for IRA contributions. In the past, if you had an individual retirement account, you were only able to contribute to it until you reached 70 ½ years old. Removing the age limit allows people to contribute to their IRA as long as they still work.
Inherited Retirement Account Distributions Taken Within 10 Years
Inherited retirement account distributions are now required to be taken within 10 years. In the past, if you inherited an IRA, you were able to stretch out withdrawals and tax payments on distributions over the course of your life. However, under the SECURE Act, beneficiaries of retirement account owners who die after January 1, 2020 may need to withdraw assets within 10 years time. Exceptions to this can include a surviving spouse, minor children, disabled and chronically ill beneficiaries, and beneficiaries who are up to 10 years younger than the IRA owner.
New Parents Can Take Penalty-Free Withdrawals
New parents are now able to take penalty-free withdrawals under the SECURE Act. Under certain circumstances, the IRS allows penalty-free early distributions from some types of retirement accounts. The SECURE Act added a new exception to this by allowing a $5,000 withdrawal after experiencing the birth or adoption of a child.
Long-Term Part-Time Employees Eligible for 401(k) Plans
In the past, if you were a part-time employee, you had to work a minimum of 1000 hours during a 12-month period to contribute to a 401(k). Under the SECURE Act, there is now a way for more part-time workers to become eligible. Employees who are 21 years or older and work a minimum of 500 hours in 12-months for three consecutive years are able to contribute to a 401(k) plan.
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