Buzz
Here’s some exciting news for your future retirement: Congress is working on making it easier for you to save for that moment when you can finally leave the office behind and enjoy a relaxing day by the sea.
The Setting Every Community Up for Retirement Enhancement Act of 2019, or SECURE Act, was included in the government’s year-end spending bill, which passed the House of Representatives this week. It will soon head to the Senate, where approval is expected before the holiday season.
What’s inside this legislation? A series of new regulations designed to simplify retirement savings. Let’s dive into some of the key points:
Modifications to Retirement Contributions
Employees working part-time at companies offering a 401(k) plan will now be eligible to participate. There are two ways to qualify: 1. The employee works less than 1,000 hours per year for at least one year, or 2. The employee works a minimum of 500 hours per year for three consecutive years.
Small businesses can receive a $500 tax credit for establishing new 401(k) or SIMPLE IRA plans with automatic enrollment. Existing plans can be converted to include automatic enrollment to qualify for the credit. This benefit will be available for a three-year period.
Graduate and postdoctoral students who receive taxable non-tuition income (such as fellowships or stipends) can now use this income for IRA contributions. Typically, these financial awards are tax-exempt, which previously disqualified students from contributing to an IRA.
Some home healthcare workers who receive tax-exempt 'difficulty of care' payments will now be allowed to contribute to an IRA.
Modifications to Retirement Distributions
The new law removes the age limit for contributing to a traditional IRA (previously 70.5).
It also raises the age at which mandatory retirement distributions begin, from 70.5 to 72.
The legislation permits penalty-free withdrawals from retirement plans for birth or adoption. Currently, early withdrawals that aren’t for specific reasons like tuition, buying a home, a funeral, or a recognized hardship incur a 10% penalty in addition to the regular tax rate.
An Added Bonus for Education
The new legislation broadens the scope of 529 education savings accounts, allowing them to cover costs for apprenticeships, up to $10,000 in student loan repayment, and tuition for private elementary or secondary schools.
Naturally, the passage in the Senate and President Trump's approval won’t immediately activate these policies—change is a process. However, it's important to stay alert for updates as these new rules are rolled out.
