On May 23rd, the House of Representative passed the SECURE (Setting Every Community Up for Retirement Enhancement) Act. While this bill may or may not pass, it is important to realize the key implications it can have on your future.
Some major features of the Act include:
Greater opportunity for part-time workers to participate in 401(k) plans
The Act guarantees 401(k) plan eligibility for part-time employees who have worked at least 500 hours per year for three consecutive years, compared to the current norm of 1,000 hours worked in a year.
An increase in the minimum distribution age from 70 ½ to 72 years of age
This could provide significant growth for those who don’t need to take required minimum distributions out of their retirement and would rather see their
money grow for another 18 months.
No age limit on IRA contributions
Under current law you can no longer contribute to Traditional IRAs after age 70 ½ (the same age you are required to start taking distributions). The new proposal would allow workers to continue to put away their money into their retirement with no age restriction.
Penalty free withdrawal for special circumstances
Following the birth or adoption of a child, up to $5,000 per person ($5,000 each if married) can be taken out penalty free to pay for the birthing or adoption expenses.
Required withdrawals from inherited IRAs within 10 years
Current rules on inherited IRAs allow the designated beneficiary to withdraw the balance in the account over the beneficiary’s estimated life expectancy. The SECURE Act would require that the entire balance of the inherited interest be drawn down within 10 years. There would still be exceptions for spouses, disability, chronic illness, and minors (until the age of majority).
Assistance to small businesses
Increase the current tax credit available for retirement plan start-up costs from $500 per year to $5,000. The credit would still be limited to 50% of the start-up expenses. The Act would also create a new additional $500 credit for small businesses that include an automatic enrollment. Lastly it would allow unrelated employers to participate in multiple-employer plans under a “pooled plan provider”, resulting in lower administrative costs.
If the SECURE Act is passed, it will be important to look at your current retirement plans and determine what changes will be necessary to ensure you receive the most benefit in your golden years. Henry+Horne is here to help you along the way.