The Setting Every Community Up for Retirement Enhancement (SECURE) Act, which took effect January 1, 2020, is one of the most significant pieces of retirement legislation in over 13 years. It affects many aspects of retirement and savings plans, including:
- Workplace retirement plans such as 403(b), 401(k) and 457 plans
- Individual retirement accounts (IRAs)
- College savings plans (529)
In general, the SECURE Act brings much needed reform to the retirement system and will help more Americans save for the future, increase their savings and gain access to guaranteed income for life when they retire.
Below are some of the changes you should know about. Since a number of the SECURE Act’s provisions will be subject to interpretation by the Internal Revenue Service or other authorities, be sure to consult with a tax advisor about your own situation.
Lifetime income
TIAA is proud to have supported provisions of the SECURE Act that recognize the importance of lifetime income in helping people feel ready for retirement. This is a major step forward at a time when market investments alone are proving to be inadequate for many retirees.
Other than pensions and Social Security, annuities are the only retirement option that can guarantee income for as long as you live. As life expectancy increases and healthcare costs continue to rise, annuities have become an important way for people to literally “insure” they won’t run out of money in retirement. New SECURE Act rules will now:
- Make it easier for employers to include annuities as an option in their retirement plans
- Require employers to show employees how their retirement account balances translate into guaranteed monthly income
- Enhance the ability of plans to distribute lifetime income investments in certain circumstances
Contributions to IRAs
Previously, you could not contribute to a traditional IRA once you reached age 70½. This rule has been eliminated, so you can now contribute at any age, if you qualify. This may help people who continue working into their 70s.
Required minimum distributions (RMDs)
Until now, RMDs, or the amount you have to take out of your pretax retirement accounts annually to claim on your taxes, started at age 70½. This age has now been raised to 72 for people who reach age 70½ after 2019 (born after 6/30/1949), giving your money more time to potentially grow before you have to take it out and pay taxes on it.
Retirement plan beneficiaries
A significant change affects the beneficiaries of retirement accounts, including employer plans and IRAs (traditional, Roth and others). The new law requires nonspouse beneficiaries to take out the entire balance within 10 years instead of “stretching” payments over their lifetime. This rule does not apply to:
- Spouses
- Disabled or chronically ill individuals
- Minor children of account owner (until they reach the age of majority)
- Anyone else not more than 10 years younger than the original account owner
- Anyone who inherited a retirement account prior to January 1, 2020
This change could have a big impact on estate planning strategies. Alternative strategies may be available, so be sure to consult with an attorney or tax advisor.
TIAA has a history of actively engaging policymakers to keep the “stretch” rules for beneficiaries in place. In the legislative compromises that led to the SECURE Act’s passage, we were pleased to see that the “stretch” provision was not eliminated altogether as was originally proposed.
Access to retirement plans
Many of the SECURE Act’s rules are designed to allow more people to save for retirement within their workplace retirement plans. A few examples include:
- Giving incentives to small businesses to set up retirement plans
- Allowing smaller employers to join together to offer a retirement plan to their employees
- Requiring 401(k) plans to permit certain long-term, part-time workers to make contributions
Other rules that can help individuals and families include:
- Increasing the amount that can be contributed under automatic enrollment and contribution plans to improve retirement savings for those that aren’t actively engaged in their plans
- Allowing penalty-free withdrawals—from IRAs and from retirement plans that allow withdrawals—for birth or adoption expenses, up to $5,000 from each parent’s account, along with the ability to pay the money back
College savings plans
The law expands the definition of a tax-free or qualified distribution from a 529 savings plan to include repayment of up to $10,000 (lifetime limit) in qualified student loans and payment of expenses for certain apprenticeship programs. The SECURE Act makes these changes retroactive to distributions made after December 31, 2018. TIAA is working to analyze and implement this change as quickly as possible.
More information
Visit the House Committee on Ways and Means SECURE Act section-by-section document . Check this page for further updates on these and other changes. For more information on the new rules for RMDs, go to the RMD article.
Annuities are designed for retirement and other long-term goals. They offer several payment options, including lifetime income. Guarantees are based on the claims-paying ability of the issuer.