If you are above a certain age, you remember it being called “Christmas Vacation,” not “Winter Break.” And if you’re old enough to remember that earlier phrase, you’re old enough that retirement is probably high on your mind.
Well, while you were on your Christmas vacation, things changed. Specifically, the rules of your retirement changed. And you better understand the meaning of those changes because they may also have changed some long-standing assumptions you made about not only your retirement, but also your estate plan.
Just before (or during) your winter break, Congress passed and the President signed the SECURE Act. On the off chance you’ve been off the grid, here are three ways your retirement changed while you were too busy celebrating the Holidays to notice:
#1: Your retirement fund can now grow larger than you originally assumed.
This may be good news or it may be a nothing burger. The new law actually relaxed a previously mandated provision that required you to take out a minimum distribution from your IRA once you reached age 70½.
Now, you can keep your money growing untouched for a little bit longer. The new required minimum distribution age is 72 years. They even got rid of that pesky “½” (and some other confusing matters). Don’t worry, you can still take distributions early if that’s what you wanted.
Tired of being told when to retire (or at least when to stop contributing to your IRA)? Well, you’re in luck! Under the new rules, as long as you continue to work, you can continue to contribute.
In the past, you had to stop making IRA contributions when you turned age 70½. Not only does the new law get rid of the darned “½,” it got rid of the “70,” too.
The bottom-line: there’s no longer an upper age limit when it comes to contributing to your IRA.
You can grow your retirement fund a lot longer (and hopefully larger) than you thought you could before you travelled back home for Christmas.
#2: You may need to change your estate plan.
Of course, there’s a downside to growing your retirement fund too large. You don’t have enough years left to spend it all.
And—spoiler alert—you can’t take it with you.
Sure, the natural move is to name your spouse as the beneficiary. But what if your spouse doesn’t need it?
Well, for a long time, financial professionals would recommend you name someone in the next generation as your beneficiary. This had the advantage of stretching out those aforementioned required minimum distributions over an extended period of time (based in part on the age of the younger beneficiary).
Here’s the bad news: that option is off the table for the most part. And by “for the most part,” that means you can still pick someone in a younger generation. Now you can only stretch those required distributions for a maximum of ten years.
That ten-year cap may cause you to change how your estate plan treats your retirement fund. Better check with your estate planner to be sure.
#3: Coming soon to a 401(k) near you…
For years, the financial industry has been trying to figure out a way to get annuities into 401(k) plans. This is because 401(k) and IRA accounts aren’t a sure thing when it comes to retirement income. They tend to go up and down with the market.
Given the choice, people prefer a sure thing to a not sure thing. A lot of folks (mostly annuity sales reps, but also regular people who answer survey questions about their future retirement) would feel better if they had a steady stream of dependable income in retirement. Annuities can provide this.
It’s not that annuities weren’t allowed in 401(k) plans. It’s just that the fiduciary liability associated with including annuities was too much for many company plan sponsors.
The new law changes that.
The industry is still sorting out the best method to offer annuities in company plans, but expect them to start showing up in the investment option menu of your company’s 401(k) plan very soon.
So, there it is. This is what happened to your retirement when you weren’t paying attention as the year came to a close.
What do you think of these changes? Are they keepers for you, or are you planning on returning these gifts at the earliest possible convenience (but discreetly, so no one notices)?