MONEY MATTERS: What is the SECURE Act and how does it affect you?

MONEY MATTERS: What is the SECURE Act and how does it affect you?
Money Matters (Source: WIS)

COLUMBIA, S.C. (WIS) - Have you ever heard of The SECURE Act?

If you’re like most people you probably haven’t. The Setting Every Community Up for Retirement Enhancement Act became law earlier this year but has been overshadowed by The CARES Act and Coronavirus pandemic.

The goal of the legislation is to make saving for retirement easier and more accessible for more Americans.

It does many things, including:

  • Repeals the maximum age for traditional IRA contributions, which is currently 70½.
  • Increases the required minimum distribution (RMD) age for retirement accounts to 72 (up from 70½).
  • Allows long-term, part-time workers to participate in 401(k) plans.
  • Offers more options for lifetime income strategies.
  • Permits parents to withdraw up to $5,000 from retirement accounts penalty-free within a year of birth or adoption for qualified expenses.
  • Allows parents to withdraw up to $10,000 from 529 plans to repay student loans.

Josh Bradley of Capital City Financial Partners says the first two bullets points above are the most important.

"The biggest thing people are seeing as a result of this is an extended age for RMDs. That’s Required Minimum Distributions, the amount the government forces you to pull out of your qualified accounts ... the government starts making you pull money out once you hit a certain age. The reason for this is they want to collect their taxes that you got a deduction on when you put it in. Prior to The SECURE Act that age was 70.5, however, now you are not required to take distributions out until age 72, " Bradley said.

Bradley says there are pros and cons.

“The big pro is, if you’re still working, you’re now allowed to contribute more to your retirement account. You can contribute longer than you had in the past. However, by pushing out the RMD age by another two years what the government is allowing your account to do is to grow even bigger and also they’re pushing out these forced distributions into the future when tax rates should be going higher.”

Bradley went on to say the Trump tax cuts are set to expire in 2026 and presidential candidate Joe Biden has proposals that could pull that a little more forward.

Bradley reiterated the aim is to push out account distributions to later years when account balances are higher and the tax rate will most likely be higher as well.

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