What Is the SECURE Act and Other Retirement Reform Questions

Five things you need to know about the recently-enacted legislation that could impact your retirement and how you plan for retirement.

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You have worked hard throughout the years to financially plan for your retirement. Part of that hard work applies to staying up to date on financial rules and federal regulations that impact the industry.

In December 2019, the U.S. House and Senate passed significant reform legislation designed to help Americans better prepare for retirement. Here are five things you should know about the Setting Every Community Up for Retirement Enhancement (SECURE) Act and how it could affect your retirement plans:

Q: What is the SECURE Act?

A: The SECURE Act was signed into law Dec. 20, 2019, by President Donald J. Trump. The new bipartisan legislation includes provisions for individual retirement accounts (IRAs), 401(k) plans and the required minimum distributions (RMDs) age.

Americans are living and working longer, and this act is aimed at helping people better financially prepare for a longer life in retirement.

Q: How will the age increase on required minimum distributions (RMDs) affect me?

A: RMDs are the minimum amount a person must draw from their retirement plan account each year, once they hit a certain age. With the SECURE Act, the RMDs age increased from 70 ½ to 72. This change gives people approximately two additional years for their finances to grow tax-deferred in retirement accounts and plans such as IRAs and 401(k)s.

It is important to note if you turned age 70 ½ on or before Dec. 31, 2019, your first distribution needs to be made by April 1, 2020, which is still considered the distribution for 2019.

More information on RMDs is available on the IRS website.

Q: Are stretch IRAs being eliminated?

A: A “stretch IRA” is not a type of IRA but, rather, references a financial planning strategy for a person’s estate that extended tax-deferred benefits for non-spouse beneficiaries who inherited the account. The SECURE Act eliminated stretch IRAs inherited on or after Jan. 1, 2020.

Now with the new legislation, if the owner of a stretch IRA passed away after Dec. 31, 2019, the stretch option is no longer available. However, non-spouse beneficiaries who inherited stretch IRAs before Dec. 31, 2019, are still allowed to utilize the stretch option.

Q: What is happening with the maximum age limit for traditional IRA contributions?

A: With the SECURE Act, there was a repeal of the maximum age for traditional IRA contributions. Before Jan. 1, 2020, once you reached 70 ½, you could no longer make contributions to a traditional IRA. Since people are living longer in the retirement phase of their life, that age limit has been eliminated to help them with their long-term finances.

Now, there are no longer any age restrictions to make contributions to a traditional IRA. However, there are still compensation requirements to contribute to an IRA, and these requirements have not changed under the SECURE Act.

 Q: What’s my next step?

A: It’s important to note the SECURE Act is subject to interpretations from the Internal Revenue Services or other authorities, and provisions may change without notice. If you are seeking advice, it is recommended you consult a qualified tax professional.

Whether you’re close to retirement age or are in the beginning stages of your career, strengthening a long-term financial plan starts with understanding how legislation impacts your retirement and the steps you can take to protect your future income.

 

Source: The Setting Every Community Up for Retirement Enhancement Act of 2019 (The SECURE Act)
Please see the SECURE Act, starting on page 604 of the Further Consolidated Appropriations Act, 2020. https://www.congress.gov/116/bills/hr1865/BILLS-116hr1865enr.pdf

The content is provided for informational purposes only and does not constitute advice. For specific details on how this may apply to your personal situation, contact your personal financial advisor or insurance agent for more details. American Equity contracts are only sold through independent agents. Please contact your state insurance department to see if there is an independent insurance agent in your area appointed to sell American Equity annuity contracts. 
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