Blog | 5 P’s of Life
Over the past few months, you’ve probably heard references to the SECURE Act and CARES Act. But you may be unclear as to how they impact your retirement.
The SECURE Act was signed into law on December 20, 2019. It’s an acronym for Setting Every Community Up for Retirement Enhancement.
The CARES Act was signed into law on March 27, 2020. It’s an acronym for Coronavirus Aid, Relief, and Economic Security.
Both Acts impact your retirement money. Some changes affect your retirement savings, and other changes impact your withdrawals.
This post summarizes how each Act could impact your retirement. To identify specific implications to your retirement plan, discuss it with your CFP®.
Small Business Owners:
If you are a small business owner, the SECURE Act offers a way to set-up less expensive retirement savings plans that are easier to administer. There’s also a tax credit if you create a plan with automatic enrollment. Sift through the details of the Act to determine if your small business qualifies.
If you work part-time, the SECURE Act may allow you to participate in your employer-sponsored retirement savings plan. Check with your employer for eligibility requirements.
The SECURE Act allows you to contribute to your IRA as long as you have earned income. This change helps those who continue to work beyond age 70 ½ (the previous limit).
401(k) Investment Choice:
The SECURE Act allows 401(k) plans to offer annuities. This type of product creates your own personal pension plan.
The investment representative of your 401(k) plan could provide more information. You can also hire a CFP® to review this information to decide if it’s the right option for you.
Required Minimum Distributions:
The SECURE Act changed the age for required minimum distributions (RMDs) in a traditional IRA. The age was 70 ½. It is now 72. (Roth IRAs do not have RMDs.)
The CARES Act waived RMDs for 2020. If you already took an RMD and didn’t need the money, then you have until August 31, 2020, to submit paperwork to reverse the withdrawal.
Non-spouse beneficiaries are now required to withdraw all funds from an inherited IRA within ten years, according to the SECURE Act. There are exceptions to this rule.
If you inherit an IRA (whether it’s traditional or a Roth), discuss the tax implications with your tax advisor.
If you are developing your estate plan, address tax implications for your beneficiaries.
The CARES Act waives the 10% penalty for early withdrawals from eligible retirement savings plans as long as the withdrawal is “coronavirus- related.” All withdrawals are treated as taxable income and are limited to $100,000.
The CARES Act increased the amount qualified individuals may borrow from an eligible retirement plan. There are specific requirements to qualify for this type of loan. There are also financial consequences if the loan is not repaid.
Keep in mind this recap of the SECURE Act and CARES Act is limited to the impact on money for retirement. If any changes impact you, discuss the details with your tax advisor and CFP® before taking action.
With the pandemic, you may be more aware of your financial situation and habits. Reach out to me if you’re ready for a retirement check-up.
ABOUT THE AUTHOR:
Niv Persaud, CFP®, CDFA™, RICP®, CRPC®, is the Founder of Transition Planning & Guidance, LLC. Life is more than money. It’s about living the lifestyle you want and can afford. For that reason, Niv consults with clients on money, life, and work. Her approach capitalizes on techniques she learned throughout her career, including as a management consultant, executive recruiter, and financial advisor. Her services include developing spending plans, comprehensive financial plans, divorce financial reviews, retirement plans. Niv actively gives back to her community through her volunteer efforts. She believes in living life to the fullest by cherishing friendships, enjoying the beauty of nature and laughing often — even at herself. Her favorite quote is by Erma Bombeck, “When I stand before God at the end of my life, I would hope that I would not have a single bit of talent left and could say ‘I used everything you gave me.’”