SECURE Act: What you need to know

The Setting Every Community Up for Retirement Enhancement Act (the SECURE Act) was recently signed into law. This comprehensive retirement and savings bill has a number of significant provisions that took effect starting Jan. 1, 2020.
The Passage of the SECURE Act has several important changes that could affect your financial strategies, including:
Given these changes, it is important to discuss your strategy with your financial advisor, tax professional and maybe your attorney to see if any adjustments should be made. For example, strategies such as Roth conversions may be more attractive with the passage of this law.
The following are some of the highlights and what each potentially means to you:
If you were born on or after July 1, 1949, your RMD age is now 72. If you were born on or before June 30, 1949 (meaning you turned 70½ before the SECURE Act took effect), your RMD age remains 70½.
What this means for you:
You can now continue to make contributions to your IRA past age 70½, assuming you meet the income requirements to contribute to an IRA.
What this means for you:
Non-spouse beneficiaries used to have an option allowing them to "stretch" the required minimum distributions from an inherited IRA over their lifetimes, allowing the potential for smaller distributions and more tax-deferred growth. With the passage of the SECURE Act, unless the beneficiary is an "eligible designated beneficiary" (see examples), distributions are required to be distributed over a 10-year period.
What this means for you:
For those who inherit a retirement account that must be distributed within 10 years, note that while the entire value of the account must be distributed by the end of the 10th year, you may not have to take a distribution each year. If the original account owner died before they were required to take RMDs, annual distributions aren't required, and it may make sense to try to structure distributions when you may have a more advantageous tax rate (for example, take higher distributions in years when you have lower expected income or no distribution in a year with unusually high income). We’re currently waiting for guidance from regulators about whether annual distributions are required, if the original account owner died after they were required to take RMDs. If annual distributions are required in this scenario, there may be less flexibility to structure distributions advantageously.
Parents can take up to $5,000 of penalty-free distributions from their retirement accounts, including their IRAs, in the year following the birth or adoption of a child.
What this means for you:
A 529 plan account can now be used to cover costs associated with registered apprenticeships and for up to $10,000 of qualified student loan repayments, without worry about federal income tax and penalties. State laws may vary in their treatment of these expenses.
What this means for you:
While the distributions would be considered a qualified distribution at the federal level, it is still important to check with your state's laws to ensure it is also qualified at the state level. Grandparents who own 529 plans for their grandchildren may consider this option versus potentially paying for tuition while the children are in school, as it could be more advantageous from a financial aid perspective.
Depending on your circumstances, a Roth IRA conversion could lower the overall taxes paid on the assets you wish to leave to your non-spouse heirs. When you pass along a traditional IRA, your heirs must pay income tax on the assets distributed from the account, which now generally must be completed over a 10-year period. This may mean increasing not only the size of the distributions but also the potential taxes owed – as the larger distributions could now push them into a higher tax bracket. With a Roth IRA, the distributions your heirs take are generally tax-free.
That said, when you convert assets from a traditional IRA to a Roth IRA during your lifetime, you pay income taxes on the amount converted. Depending on your income and tax rate, this tax rate may be lower than what your heirs would pay, which could make it an advantageous strategy for some. Consult your tax professional, in addition to your financial advisor, to determine if this strategy would be helpful in achieving your legacy goals.
If the above items apply to you, you may want to discuss your situation with your financial advisor to see if any adjustments need to be made. In addition, you will want to consult your tax, legal and/or estate planning professionals, as your financial advisor cannot provide tax or legal advice.
Notably, one of our most important goals is to work alongside you to understand what is most important to you, and then use an established process to help you achieve those goals. A "secure" retirement may be one of those goals. Your financial advisor can help you determine if any adjustments need to be made to your strategy, whether because of the above rule changes or simply based on how you are progressing toward your goals, to ensure you're on track toward retirement security.