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If you are retired or preparing for your retirement, you should be aware of some significant changes that may impact your retirement financial strategy.
Foremost is the passage of the SECURE Act, which stands for “Setting Every Community Up for Retirement Enhancement.” The SECURE Act, which came into force January 1, makes a number of changes to retirement saving and investment vehicles that may positively or negatively impact your strategy.
For example, the SECURE Act increases the required minimum distribution and contribution ages. Previously, people age 70.5 were required to take minimum distributions (RMD) from 401(k)s or IRAs. The SECURE Act increases that age to 72. The bill also eliminates the maximum age for traditional IRA contributions, which was previously capped at 70.5 years old. Americans who turned 70.5 years old in 2019 will still need to withdraw their required minimum distributions this year to avoid penalties.1
The SECURE Act also encourages more employers to offer annuities as an option within 401(k) plans by shifting fiduciary responsibility from the employer to insurance companies. In addition, the Act provides for a tax credit for employers that automatically enroll workers into their retirement plans.
The Act also can impact non-spousal heirs. Under the current law, beneficiaries may be allowed to withdraw required minimum distributions for the span of their lives. But the SECURE Act now requires beneficiaries withdraw all assets of an inherited account within 10 years.
In other changes, the IRS announced contribution-limit increases for certain retirement plans. The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan increases to $19,500 from $19,000. The catch-up contribution limit for employees aged 50 and over in these plans rises to $6,500 from $6,000. The limit on Simple IRAs for 2020 increases to $13,500, up from $13,000 for 2019.2
In addition, the income ranges for determining eligibility to make deductible contributions to traditional IRAs, Roth IRAs and to claim the Saver’s Credit all increased for 2020. For instance, the income phase-out range for married couples filing jointly who make contributions to a Roth IRA is $196,000 to $206,000, up from $193,000 to $203,000.
Social Security and Supplemental Security Income benefits will increase 1.6% in 2020 as part of the annual cost-of-living adjustment. The program’s full retirement age (the age to qualify for the full 100% benefit) will increase by two months to 66 years and eight months for persons born in 1958. Meanwhile, Medicare costs will increase. For example, Medicare Part B premiums are increasing 6.7 percent or more.3
With all the changes coming this year, now may be a good time to assess your retirement strategy and course-correct if needed.
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How the SECURE Act might affect my retirement strategy
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1. MarketWatch, The SECURE Act is changing retirement — here are the most important things to know, January 2020
2. PlanSponsor, IRS Announces 2020 Contribution and Benefit Limits, November 2019
3. AARP, What Are the Social Security Changes in 2020?, October 2019
4. Kiplinger, Medicare Part B Premiums Climb for 2020, November 2019
This publication is designed to provide general information and is for discussion purposes only. The effectiveness of any strategy is dependent upon each individual’s facts and circumstances. This article does not provide legal, tax or account advice. Because of the possibility of human or mechanical error, the accuracy, adequacy, completeness or availability of any information is not guaranteed.