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Consumer Connection: What is the SECURE Act?

Sonya Sellmeyer is the Consumer Advocacy Officer for the Iowa Insurance Division 

The U.S. is facing a retirement security crisis, and Iowa is no exception.  According to a 2019 study done by the Iowa Insurance Division and the Association for Financial Counseling and Planning (AFCPE) and other partners, 49 percent of Iowa residents do not feel they are adequately planning, or financially prepared for their retirement.   Thirty-nine percent of Iowans are planning to live off Social Security in retirement, and 37 percent of Iowans have less than $5,000 saved or invested for retirement.  Even more alarming, many Iowans will outlive their assets in retirement as we are living longer, which requires more financial protection in retirement. 

Congress recently worked in bipartisan fashion to pass the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE ACT) which focuses on retirement security.  On December 20, 2019, President Donald Trump signed it into law. The SECURE Act provides support to all Americans, from those thinking about starting to save for retirement to those who may have already retired.  Here are the key points you need to know about the SECURE Act:

●     Eliminates the age restriction on traditional IRA contributions.

●     Increases the age to take Required Minimum Distributions (RMDs) to age 72.

●    Allows withdrawal of $5,000 from a retirement account following the birth or adoption of a child without paying the 10% early withdrawal penalty (there may still be tax consequences). 

●      Provides certain part-time employees eligibility for a 401k from their employer.  Part-time employees who have worked at least 500 hours over the last three consecutive years and are 21 years old by the end of the three years may be eligible.

●     Adds  “lifetime income disclosure statements” to 401k statements for plan participants to illustrate the monthly payout if the 401k balance is used to purchase an annuity.

●     Allows for additional annuity options to be provided to 401k participants since the SECURE Act eases the liability risk of the plan sponsor from offering these annuities.

●    Boosts the cap for the employee contribution in a qualified automatic contribution arrangement for a 401k from 10 percent to 15 percent after the employee's first year of participation.

●     Benefits small employers by increasing the tax credit for their retirement plan startup costs,   and allows a new $500 tax credit for those 401k and SIMPLE IRAs that include automatic enrollment.  Also, the act makes it easier for small businesses to join together to set up plans for their employees.

●     Discourages loans from a 401k by prohibiting loans through a credit or debit card arrangement.

●     Allows 529 college savings plans to be used for qualified student loan repayments up to $10,000 annually. 

Most, but not all provisions have taken effect as of January 1, 2020. 

Consult a licensed financial professional to discuss these changes and build a secure retirement to ensure assets that have been accumulated can provide for a dignified retirement.