The SECURE ACT is Changing Stretch IRAs

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The SECURE ACT is Changing Stretch IRAs

The SECURE Act was signed into law by President Trump on December 20, 2019. Here are some key changes you should know as you plan for retirement:

Generally, the SECURE Act:

  • Removed Maximum Age limit for IRA Contributions
  • Increased the age for Required Minimum Distributions (RMDs) from age 70.5 to 72
  • Enforces a 10yr distribution window for most inherited retirement accounts – no more stretch IRAs

The SECURE Act is likely to increase age tax-qualified account balances because people will be encouraged to save more in these accounts. It will also increase government tax revenues because of the 10yr distribution rule on inherited accounts.

Also under the Secure Act, employers get a tax credit by automatically enrolling employees in the company sponsored retirement plan (Small-Employer Automatic Enrollment Credit). If you don’t want to be automatically enrolled into contributions to your company retirement plan you may need to take action to opt-out.

Now is a good time to consider how much of your money you wish to invest in tax-qualified accounts compared to paying the tax and building wealth in other types of accounts where you have more control, lower fees and less market risk.

For example: Target-date mutual funds are a default option for most retirement plans with an automatic enrollment. Target-date funds are sold as a “set it and forget it management strategy” and they are also notorious for high fees. Fees are a killer whenever you try to grow your money.

Compare target-date funds with the guaranteed values that build in participating whole life insurance policy over a similar time period. It could make sense to keep the control of your money and lock in guaranteed growth through life insurance + leave any legacy to your heirs income tax-free, instead of putting them into a higher tax-bracket with required distributions on an inherited tax-qualified account.

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