Retirement Changes Are Coming And You Need To Know What's Actually Included - SECURE Act of 2019

Anytime changes happen in legislation you should understand how it will impact your financial plan and make adjustments accordingly.

Change is a Constant

The SECURE Act known as Setting Every Community Up For Retirement Enhancement Act of 2019 was passed by the House in May. The bill currently awaits passage in the Senate.

Just last year we saw the Tax Cuts Jobs Act, and next up we are seeing more retirement planning evolution with the SECURE Act. Change is happening rapidly in the retirement world, and you don't want to be left behind!

What You Really Need To Know

Below I have outlined important sections that may be most applicable to the average American. I've offered a brief explanation of each section as the description itself can offer specific industry lingo which can make the comprehension of what's being said more difficult. Keep It Simple, Stupid. If only the legislators ran by my motto...

Link: The SECURE Act from the house committee (Overview)

Link: The SECURE Act in detail - Download 101 Pages

TITLE I: Expanding and Preserving Retirement Savings

Section 101: Increase Auto Enrollment Percentage from 10% to 15%

"Expand Retirement Savings by Increasing the Auto Enrollment Safe Harbor Cap The legislation increases the cap from 10 to 15 percent of employee pay that required automatic escalation of employee deferrals go no higher than under an automatic enrollment safe harbor plan."

Explanation: It is important to understand the retirement industry is moving from defined benefit pension plans (traditionally funded by the company) toward employee funded 401(k) plans.

Section 101 basically states that the automatic enrollment of an employees paycheck into a 401(k) plan was limited to 10% and is now increased to 15% of the employees pay. The employee can opt out.

Section 103: Increase Tax Credit For Retirement Start-Up Costs

"Increase Credit Limitation for Small Employer Pension Plan Start-Up Costs Increasing the credit for plan start-up costs will make it more affordable for small businesses to set up retirement plans. The legislation increases the credit by changing the calculation of the flat dollar amount limit on the credit to the greater of (1) $500 or (2) the lesser of (a) $250 multiplied by the number of nonhighly compensated employees of the eligible employer who are eligible to participate in the plan or (b) $5,000. The credit applies for up to three years."

Explanation: Increases credit for small businesses to start up a retirement plan to a maximum of $5,000.

Section 104: $500 Tax Credit For Auto Enrollment into Retirement

"Automatic enrollment is shown to increase employee participation and higher retirement savings. The legislation creates a new tax credit of up to $500 per year to employers to defray startup costs for new section 401(k) plans and SIMPLE IRA plans that include automatic enrollment. The credit is in addition to the plan start-up credit allowed under present law and would be available for three years. The credit would also be available to employers that convert an existing plan to an automatic enrollment design."

Explanation: Tax credit of $500 for three years for plans that auto enroll new hires.

Section 106: Repeals The Max Age to Contribute to IRA

"Repeal of Maximum Age for Traditional IRA Contributions The legislation repeals the prohibition on contributions to a traditional IRA by an individual who has attained age 70½. As Americans live longer, an increasing number continue employment beyond traditional retirement age."

Explanation: Changes the maximum age to make contributions to your IRA. Currently removes the age with no replacement. The ability to continue to add to your IRA as long as you live!

Section 111: Part-Time Employees Need Retirement Too

"Allowing Long-term Part-time Workers to Participate in 401(k) Plans Under current law, employers generally may exclude part-time employees (employees who work less than 1,000 hours per year) when providing a defined contribution plan to their employees. As women are more likely than men to work part-time, these rules can be quite harmful for women in preparing for retirement. Except in the case of collectively bargained plans, the bill will require employers maintaining a 401(k) plan to have a dual eligibility requirement under which an employee must complete either a one year of service requirement (with the 1,000-hour rule) or three consecutive years of service where the employee completes at least 500 hours of service. In the case of employees who are eligible solely by reason of the latter new rule, the employer may elect to exclude such employees from testing under the nondiscrimination and coverage rules, and from the application of the top-heavy rules."

Explanation: Part-Time employees who complete 1 year with at least 1,000 hours working, or 3 years with at least 500 hours working will make them eligible for a retirement plan.

Section 112: Birth and Adoption Added to Qualified Distributions

"Penalty-free Withdrawals from Retirement Plans for Individuals in Case of Birth or Adoption The legislation provides for penalty-free withdrawals from retirement plans for any “qualified birth or adoption distributions.”

Explanation: Wanting to adopt, but have all your money tied up in retirement? This section is for you! The ability to take withdrawals from retirement accounts for birth or adoption penalty-free! Keep in mind this will not get you out of paying income tax!

Section 113: Increased RMD Age

"Increase in Age for Required Beginning Date for Mandatory Distributions Under current law, participants are generally required to begin taking distributions from their retirement plan at age 70 ½. The policy behind this rule is to ensure that individuals spend their retirement savings during their lifetime and not use their retirement plans for estate planning purposes to transfer wealth to beneficiaries. However, the age 70 ½ was first applied in the retirement plan context in the early 1960s and has never been adjusted to take into account increases in life expectancy. The bill increases the required minimum distribution age from 70 ½ to 72."

Explanation: Increased RMD age from 70.5 to 72. For those of you that want to keep as much money away from the IRS as possible, this is a small victory.

TITLE III: Other Benefits

Section 302: Increased Utility For 529 Education Plans

"Expansion of Section 529 Plans The legislation expands 529 education savings accounts to cover costs associated with registered apprenticeships; homeschooling; up to $10,000 of qualified student loan repayments (including those for siblings); and private elementary, secondary, or religious schools."

Explanation: We must find a solution to the student loan crisis that is plaguing our economy, and this is step in the right direction.

It shows a general understanding that not all future educational success is required via an ultra-inflated overpriced university, and can be done through apprenticeships and homeschooling!

Also, by giving access of up to $10,000 to pay toward student loans out of a 529 plan (or those of your siblings) is also helpful.

TITLE IV: Revenue Provisions

Section 402: Increased Penalties for Failing to File

"Increase in Penalty for Failure to File The legislation increases the failure to file penalty to the lesser of $400 or 100 percent of the amount of the tax due. Increasing the penalties will encourage the filing of timely and accurate returns which, in turn, will improve overall tax administration."

Explanation: If you pay taxes, then you are a part of the this great nation we call America and paying taxes is a duty. If you don't file you can expect to see a $400 fine maximum.

Always Be Updating

I've said it before and I will say it again. Change is a constant, and you must flow. Work with your trusted adviser to find out how the SECURE Act may impact your current or future goals.

Keep in mind if your adviser is not reaching out to you with ideas on how to achieve your goals quicker, or letting you know about changing legislation and its affect, fire them!

Hire an adviser that understands your goals and most importantly will bring value to you.

Thank you for your time!

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