Did you create your financial plan prior to 2020 but haven't yet reexamined it? If so, it may be time to do just that. Why? The answer is the SECURE Act of 2019. Here are a few of its effects on financial planning and what to consider now.
1. Required Minimum Distribution Changes
Traditional IRA and 401(k) owners must begin taking a minimum amount each year from these retirement accounts. These are known as RMDs. The SECURE Act raised the age at which you must start taking an annual RMD from 70 ½ to 73. If you don't need to access your retirement money before 73, this allows more time for investment growth and lower taxes for longer.
2. Longer Retirement Contributions
Many Americans are not as prepared for a healthy retirement as they would like. Would you like to contribute to your IRA after the age of 70 ½? If so, now you can. Delaying retirement a bit and using these extra years can help fill financial gaps in your plan. And even if you still retire on the planned schedule, you can still funnel side income into retirement accounts.
3. Elimination of the Stretch IRA
The so-called stretch IRA refers to the strategy of leaving the balance of an IRA to a beneficiary when you pass away. In the past, there was no requirement that they start taking any withdrawals until they reached their own age for RMDs. This allows more growth for investments.
Unfortunately, the SECURE Act now requires most non-spousal beneficiaries to withdraw all that retirement money within 10 years. So if you plan to leave your IRA to anyone other than your spouse, you may want to learn if this is still the best plan.
4. Easier 401(k) Annuity Rules
Finally, there is something of a behind-the-scenes change that many Americans may be unaware of. This is a change to the rules about offering annuities within a 401(k) plan.
After the demise of traditional pensions, an annuity can create a stable monthly check during retirement. However, employers were reticent to accept financial risks involving annuities, including the possibility that they would be liable for payments. The SECURE Act reduced these risks. So it may be a good time to learn more about annuities for your retirement.
Where to Learn More
Want to know more about how any of the new rules stemming from the SECURE Act? Need help to reassess your retirement plan in light of them? Start by meeting with a retirement planning advisor today.