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U.S. lawmakers have just significantly changed rules relating to retirement following the the Setting Every Community Up for Retirement Enhancement Act (the SECURE Act). It was passed into law this week as part of a much broader package of legislation. The legislation has many moving parts, and some pros and cons, but who benefits? Here are four groups who the new law may help.
If You’re Retiring Later, Or Not At All
We know that life expectancy is increasing. Starting in 2020, the law now reflects that reality. Previously if you were over 70 1/2 you couldn’t add to you retirement savings in an IRA. Next year you’ll be able to do that. The age at which you need to take withdrawals from a retirement account RMDs, or or required minimum distributions, just increased to age 72. Both give you a little more financial flexibility if you’re still working in your later years, or planning too.
If You Work Part Time
If you’re working over 500 hours a year and a long-term employee, typically defined as working for a company for at least 3 years, you may now be eligible for a 401(k) plan to save for retirement when you weren’t previously. The limit was previously 1,000 hours. This move should expand retirement savings options for part-time workers, or those splitting their time between different employers.
If You’re Having A Baby
If you’re having a baby, then cash can be tight. The law will allow for a withdrawal of up to $5,000 from a retirement account up to a year after a birth or adoption to help support the costs of having a new member of the family. Of course, the goal of retirement saving is to save, rather than use the money before retirement. This is to say that just because this withdrawal is now possible does not make it a good idea for everyone. Still, this change makes it a little easier to manage the costs of kids.
If You’re Using A 529 Plan
If you’re using a 529 plan, then the costs you can cover just became a little broader. The costs associated with apprenticeships are now generally covered. You can also now use a 529 to pay off up to $10,000 of student debt.
Not A Complete List
Of course, the legislation is complex. This isn’t a complete list and even in the situations above you should check the implementation timelines and make sure you qualify. Also the legislation is a double-edged sword, the limitations on Stretch IRAs will be a significant cost for some. I’m also not convinced that the expansion of annuities is necessarily a good thing. Annuities are great in theory, but the reality often doesn’t live up to expectations. Still, it’s great to see the legislation improve the availability and flexibility of retirement savings for many Americans.