The Setting Every Community Up for Retirement Enhancement (SECURE) Act was designed to help strengthen retirement security for more Americans by helping to increase access to tax-advantaged accounts to help citizens bolster their savings to avoid outliving their assets. As a result, business owners and other employers and employees have a host of new options to help them better prepare for a secure retirement.
The SECURE Act is landmark legislation that affects the rules for creating and maintaining workplace retirement plans for all employers (including for-profit and tax-exempt employers of all sizes). Whether you currently offer your employees a retirement plan (or are planning to do so), you should consider how these new rules may affect your current retirement plan (or your decision to create a new one).
There are many new provisions in the law that will need to be considered. Below are five of the most major changes:
- Under the former law, participants were generally required to begin taking distributions from their retirement plan at age 70½. Now, with increases in life expectancy, the provision increases the required minimum distribution age from 70½ to 72.
- Part-time employees who work either 1,000 hours through the year or have three consecutive years with 500 hours of service will be eligible to participate in their employer’s 401(k) plan.
- The SECURE Act enhanced ‘safe harbor’ retirement plans that automatically enroll workers and automatically increase their contributions over time. The deferral cap was raised from 10% to 15% after the employee’s first full year of employment.
- Plan sponsors are encouraged to include annuities as an option in their company’s plan by reducing their liability if the insurer is unable to meet their financial obligations.
- Permits qualified DC plans, 403(b) plans or governmental 457(b) plans to make a direct trustee-to-trustee transfer to another employer-sponsored retirement plan or IRA of lifetime income investments or distributions of a lifetime income investment in the form of a qualified plan distribution annuity, if a lifetime income investment is no longer authorized to be held as an investment option under the plan.
So what does this mean for employers? Below are some action items business owners and employers should consider taking in the upcoming months to ensure compliance with the new legislation as well as take advantage of some of the new benefits provided:
- Reach out to your plan administrator to ensure your retirement plan distribution paperwork is in alignment with the new laws.
- If you don’t currently have a 401(k), reach out to a retirement plan provider to explore your options.
- Work with your accountant to make sure you are taking advantage of the tax credits available.
- The five points above scratch the surface of the changes included in the SECURE Act. Others include penalty-free withdrawals for individuals in case of birth or adoption of a child, qualified plans are now prohibited from making loans through credit cards and similar arrangements, and more. Educate yourself on these new provisions and work with your plan administrator to educate employees on their new options.
Americans are continuing to work beyond traditional retirement ages and the SECURE Act will provide more flexibility for these employees. The SECURE Act also has other provisions that impact younger workers such as taking tax-free distributions from a 529 plan to pay for eligible expenses related to a beneficiary’s participation in a registered apprenticeship program or to repay certain student loans and a $5,000 penalty-free withdrawal from certain retirement plans for expenses related to child birth or adoption. There is a lot to learn and we are here to help.
Need help deciphering how this new law will impact your business? Start here.
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The views and strategies described may not be suitable for all investors. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for accounting, legal or tax advice. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation.
The views expressed are those of BerganKDV Wealth Management. They are subject to change at any time. These views do not necessarily reflect the opinions of any other firm. Investment advisory services and fee-based planning offered through BerganKDV Wealth Management, an SEC Registered Investment Advisor.