The approval of the SECURE (Setting Every Community Up for Retirement Enhancement) Act in December could force employers to rethink the intricacies of the retirement plans they offer due to several new provisions.
The law allows for an increase in age for people to contribute to their Individual Retirement Account (IRA) from 70½ to 72. The age for required minimum distribution also has increased from 70½ to 72, which Anastasia Wiese, J.D., C.F.P., a financial adviser with Grand Wealth Management, said can be beneficial.
“Not only that (people) are working longer, but people are just living longer as well,” she said. “The definition of retirement has evolved and changed as people retire and have better health and live longer, or they can work for longer as well. It is beneficial in general to delay that start for required minimum distribution from age 70½ to 72, now.”
According to Wiese, the law now makes it a little easier for long-term part-time employees to gain access to participate in a company-sponsored retirement plan, which hasn’t always been the case. The law allows for part-time employees who work at least 500 hours in three consecutive 10-month periods and have reached age 21 to participate in qualified cash or deferred arrangements to benefit from the SECURE Act.
Philip Streng, financial adviser and principal for Edward Jones, said employees can withdraw up to $5,000 from their retirement account for expenses related to the birth of a child or the adoption of a child.
“In the past, if you tried to pull money out of your retirement plan, like your 401(k), you would have been taxed and penalized,” he said. “Now with the SECURE Act, you can pull out up to $5,000, penalty-free, from your IRA or 401(k) as long as you take the money out within one year of the child being born or an adoption becoming final. So, that benefits employees.”
The law now provides employees the option to withdraw money from their 529 college-saving plans, which allows parents to cover up to $10,000 in costs that are associated with registered apprenticeship and qualified student loan debts, according to Streng.
Small employers also benefit from the SECURE Act through an increase in the maximum tax credits for their pension plan startup costs from $500 to $5,000. Streng said there is an additional $500 tax credit per year available if an employer sets up automatic enrollment for new hires in their retirement plan.
Streng said another provision in the SECURE Act allows for a Multiemployer Retirement Plan, in which multiple unrelated employers can work together jointly to create a 401(k) retirement plan. It can result in less administrative work, lessen the cost and offer fewer fiduciary responsibilities, Streng said.
Another important change in the law is the removal of the stretch IRA option, which allowed non-spouses the ability to stretch IRAs out for a lifetime after the second parent passed away. Now, Streng said, the stretch option still is available, but only for 10 years following the death of the account holder.
Despite the removal of the stretch IRA, Streng encouraged employees to take advantage of the benefits of the SECURE Act.
“Whether your employer matches or not, or you are eligible right away or not, it is incumbent on you to save for your retirement, and doing it through your plan is one of the easiest ways to do it because the money is basically put away in a savings account before the individual has a chance to spend it,” he said. “I think that it is a discipline that we all need."