Big Changes Coming For Family Retirement Planning

Jan. 15--Congress has passed a budget bill containing the SECURE Act -- otherwise known as "Securing Every Community for Retirement Enhancement Act." After being signed by the president, the SECURE Act will affect many families' personal financial and retirement planning. What is the SECURE Act?

The SECURE Act is a new retirement law containing dozens of provisions affecting 401(k)s, annuities, IRAs and taxes. The bipartisan bill will change how individuals and families navigate financial and estate planning. Most provisions in the law took effect Jan. 1.

What does the SECURE Act do?

The SECURE Act has over 29 provisions, but the most relevant provisions are that SECURE:

--Will push back the age for required minimum distributions ("RMDs") from 70 1/2 to 72. This means retirement account owners will not have to start their required minimum distributions until age 72.

--Will alow contributions to traditional IRAs after age 70 1/2. Essentially, the law removes the age limit at which an individual can contribute to a traditional IRA.

--Will make it easier for small businesses to set up 401(k)s by increasing the cap under which they can automatically enroll workers in "safe harbor" retirement plans, from 10% of wages to 15%.

--Will provide a maximum tax credit of $500 per year to employers who create a 401(k) or SIMPLE IRA with automatic enrollment.

--Will permit penalty-free withdrawals of $5,000 from 401(k) accounts to defray the costs of having or adopting a child.

--Will allow the withdrawal of up to $10,000 from Section 529 Plans to repay student loans.

Are there any negative aspects of the SECURE ACT?

What Congress giveth, Congress taketh away. In order to pay for some of its benefits, there is one particular provision that may prove costly to some families.

Prior to SECURE, an individual could name a nonspouse beneficiary (kids or grandkids) to inherit their IRA and have disbursements from the IRA paid out over such beneficiary's lifetime. This was known as a "Stretch IRA." It minimized the impact of the IRA income on the tax obligation of the beneficiary.

SECURE eliminates the Stretch IRA technique, in most cases, by requiring a full payout of the inherited IRA within 10 years of the death of the original account-holder. The elimination of the Stretch IRA should raise an estimated $15.7 billion in additional tax revenue.

Paula Burkes, Business writer

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