How The SECURE Act Changes Your Retirement Planning

How The SECURE Act Changes Your Retirement Planning

The Setting Every Community Up For Retirement (SECURE) Act recently passed and it will go into effect for all Americans in 2020. There is now the SECURE Act 2.0, which is relevant for 2023 and beyond. This article goes through the retirement benefit changes for the original SECURE Act.

The goal of the SECURE Act is to make it easier for Americans to save for retirement and live comfortably in retirement. Based on the data, we know that the median and average American is severely lacking in retirement funds.

At the same time, we also know that the average American is truly living the good life by spending $61,224 a year of their $78,635 income. When you've got Social Security, a belief that the government will save you, and a YOLO mentality, it's logical to live it up with your one and only life.

Just the other day, I decided to order a sangria at my favorite tapas restaurant instead of a plain lemon water because I was feeling the YOLO in my veins. Damn, it feels good to go a little crazy with my money sometimes due to aggressive retirement savings.

How The SECURE Act Changes Retirement Planning

The problem with new bills is that you're never quite sure what the changes are and whether the changes will last long enough to matter. You could be doing the right thing for decades and then the government decides to move the goalpost. As a result, the fundamentals of saving for retirement should never change:

  • Max out your tax-advantageous retirement accounts e.g. 401(k), IRA, 403(b), Roth IRA, SEP IRA, Solo 401(k)
  • Save at least 20% of your after-tax and after tax-advantageous retirement account maximum contribution
  • Generate extra income beyond your day job
  • Get in the mindset of never expecting the government, your parents, or your rich aunt to save you
  • Always have at least disaster insurance

No matter what happens with retirement laws in the U.S., so long as you do the above five things, you'll probably be fine.

The SECURE Act changes your retirement planning strategy at the margin. Here are the seven main things to be aware of.

1) Required Minimum Distribution Starts at Age 72 from 70.5

For those of you who have followed my advice of building a healthy taxable retirement portfolio, good news! You can now wait until you're 72 years old before being forced to withdraw money from your traditional retirement accounts.

Given our population as a whole is living longer, extending the RMD from 70.5 to 72 makes sense. We should be allowed to have our investments compound tax-free for a longer period to pay for our longer lives.

Those who turn 70½ on or after Jan. 1, 2020, are subject to the new rules and will have an extra year and a half before they need to start withdrawals.

Your goal: Amass a large enough taxable retirement portfolio so that you can wait until 72 to withdraw from your retirement funds. You want your retirement funds to compound tax-free for as long as possible. Once you start withdrawing from your retirement funds, withdraw the minimum amount necessary to keep your taxable income in the lowest tax bracket possible. Finally, live as long past 72 as possible.

2) Pre-tax Contributions Can Be Made To Your Traditional IRA After Age 70.5

If you are fortunate enough to still have the energy, ability, and desire to still have W2 income after age 70.5, you'll now be allowed to contribute to a traditional IRA. Working beyond the traditional retirement age of 65 is one of the best ways to solidify your finances.

The maximum IRA contribution for 2020 is $6,000, the same as in 2019. The IRA catch-up contribution limit will remain $1,000 for those age 50 and older for a maximum possible IRA contribution of $7,000 in 2020.

Unfortunately, the government still doesn't allow all Americans to contribute to a traditional IRA with pre-tax income. For some reason, it believes that once a single individual makes over $139,000 a year in 2020 for a Roth IRA or more than $75,000 for a traditional IRA, they no longer want or need to save for retirement.

It befuddles me that the government believes a 25-year-old making $150,000 in a high-cost city with tremendous student loan debt doesn't have the same pre-tax compounding retirement benefits as everybody else.

It also makes no sense that once a married couple makes over $124,000, they aren't eligible to contribute pre-tax money to a traditional IRA as well. $75,000 + $75,000 = $150,000, not $124,000 for the traditional IRA. The same thing with $139,000 + $139,000 = $278,000, not $206,000 for the Roth IRA.The government is either bad at math or doesn't believe in equality.

Below are the income and contribution limits for a traditional IRA for 2020.

Income Limits and Contribution limits for Traditional IRA

Below are the income and contribution limits for the Roth IRA.

Your goal: Save so much in your taxable and pre-tax retirement accounts that you don't need a job after 70.5 to fund a traditional IRA. If you want to work in your 70s, that's fine. But do so as a freelancer where you can set your own hours and rules.

3) No More Stretch IRA

A stretch IRA was an estate planning strategy that extended the tax-deferred status of an inherited IRA when it is passed to a non-spouse beneficiary. Theoretically, an IRA could be passed on from generation to generation while beneficiaries enjoyed tax-deferred and/or tax-free growth. That's now gone thanks to the passage of the SECURE Act.

Under the new law, most beneficiaries will have to withdraw all the distributions from their inherited account and pay taxes on it within 10 years. Exceptions are made for spouses and the chronically ill or disabled.

For those who inherit an IRA after January 1, 2020, the stretch IRA is no more. For those who inherited an IRA before January 1, 2020, you can defer your tax liability as usual.

Your goal: Talk to an estate planning lawyer. He or she will tell you things that you probably have not considered before, like the GRAT. Set up a revocable living trust if you have children. At the very least, have a clearly written will. Estate planning is an act of kindness for your beneficiaries.

4) Watch Out For Annuity Options In Your 401(k)

Annuities, like whole life insurance, is a very profitable product for financial companies. Annuities are insurance products that turn a lump sum investment into a lifetime of guaranteed income.

Besides the hidden cost of owning an annuity, one of the concerns companies had for offering them in a 401(k) plan was the viability of the annuity provider. What if it went bust? Think about other products you own such as life insurance, house insurance, and car insurance. If your insurance company got into financial trouble, as some did during the 2008-2009 financial crisis, they might not pay out.

The SECURE Act increases legal coverage for employers, just in case their employees sue them because their annuity provider goes out of business and does not pay.

If you are an employer, you'd be foolish to offer an annuity option in your 401(k) plan, despite the increased legal protection.

It's All About 401(k) Matching And Profit Sharing

No employee is going to join an employer or stay at an employer because of its great annuity option in the 401(k). Instead, when it comes to retirement benefits, the #1 reason why an employee might stay is due to generous 401(k) matching and profit sharing.

In 2020, the maximum 401(k) contribution is not only $19,500 by the employee. In 2020, the total maximum 401(k) contribution is $57,000 because the employer has the ability to contribute up to $37,500 to your 401(k) as well. In 2023, the maximum 401(k) contribute limit is $22,500.

Historical 401(k) contribution limits

Your goal: Find an employer who will contribute the most money to your 401(k). If you want to work at a sexy startup, know that you are not only taking a salary cut for lottery tickets, you're likely also giving up employer retirement contributions as well. Skip annuities because they are complicated to understand, cost more than they need to, and take away your liquidity and flexibility.

5) 401(k) Accounts May Become More Prevalent For Part-Time Workers Or Employees Of Small Businesses

The SECURE Act makes it easier for small businesses to offer retirement plans by reducing their cost of providing a 401(k) plan. The cost is reduced by allowing small businesses to band together to get something similar to a group discount. It's similar to the idea of getting a group discount for health insurance or pooling your capital to buy commercial real estate.

Below is some interesting research from the Pew Research Group about benefits businesses with 5 – 250 employees provide. As you can see, only 53 percent of small businesses provide retirement benefits. Employers that do not offer plans pointed to the financial cost (37 percent) and organizational resources (22 percent) needed to start a plan as barriers. One-sixth said they do not offer a plan because their employees are uninterested (sounds like an excuse).

More Access To 401(k) Plans For Part-time Workers

Perhaps the most exciting thing about the SECURE Act is that it now requires employers who offer 401(k)s to expand its access to part-time workers who work at least 500 hours a year for three consecutive years or 1,000 hours for one year.

To put these hours into perspective, a full-time worker who works 40 hours a week, will work 2,080 hours a year. Therefore, working 1,000 hours for one year is a piece of cake! We're talking only an average 20-hour workweek.

At the margin, the offering of more 401(k) plans to part-time workers will probably further increase the rise of part-time and remote workers. As a result, I foresee a continued demographic shift towards lower cost areas. I'm pretty sure that by 2030, there will be more 1099 workers than W2 workers.

Your goal: Find part-time and remote work opportunities with employers who offer a 401(k) plan with a match. Because there is so much dead time working a full-time job with one employer, if you are reasonably efficient, you can make much more money working multiple part-time jobs.

6) 529 Plans Get More Flexible

After the Tax Cuts and Jobs Act passed in 2017, owners of a 529 plan could not only use the funds from the plan to pay for qualified college expenses, owners of the plan could also use up to $10,000 of the funds annually for K – 12 expenses.

With the passage of the SECURE Act, a 529 plan can now also be used for Apprenticeship Programs and qualified expenses including fees, books, supplies, and equipment. Further, 529 plan funds can be used to pay for principal and interest of qualified education loans as defined in IRC Section 221(d).

Finally, an additional $10,000 may be distributed as a qualified education loan repayment to satisfy outstanding student debt for each of a 529 plan beneficiary’s siblings.

Your goal: While a college degree is getting devalued each year, it's still worth opening up a 529 plan if you have children. Your contributions grow tax-free and if you don't end up using all the funds, you can change the beneficiary over to someone else. When you've got to save for retirement and concurrently save for your children's future, you might as well take advantage of tax breaks to make doing both as efficiently as possible.

7) Withdraw $5,000 penalty-free if you just had a baby or adopted

The SECURE Act allows Americans who just had a baby or adopted a child to take a withdrawal of up to $5,000 per parent from their retirement accounts, including a 401(k) or IRA, without a 10% penalty. In other words, a couple can withdraw up to $10,000 penalty-free per child.

Normally, you aren't allowed to withdraw any money from your 401(k) or IRA without a 10% penalty before age 59.5. If you must, make sure you're withdrawing the money to pay for necessary expenses, such as medical expenses. Forget using your retirement funds to fund a new remodel or car!

Your goal: Never touch your 401(k) or IRA until you are required to. The people who pilfer their retirement accounts before they retire tend not to have enough money left once they retire. Get into the great habit of allocating your money towards their specific purposes.

The SECURE Act Is A Net Positive For Retirement

Our do-little and highly discriminatory government has finally done something financially positive for millions of Americans. Let's just hope the SECURE Act stays in place for a long time and we see further bills that make saving for retirement easier for all.

If I was President, I'd certainly propose to raise the traditional IRA income limit to at least $250,000 / $500,000 for single and married people. The contribution limit would be raised to at least $10,000 per person as well. By doing so, more Americans who live in high-cost areas could also benefit.

Use the SECURE Act as motivation to always max out your 401(k) and traditional IRA if eligible. Then do your best to find a better way of working now that 401(k)s will be offered to more types of employees.

Even though the government has taken a small step to help us out, let us never rely on the government to save us. I have no doubt retirement rules will eventually change again.

Looking for a free retirement planning tool? 

Sign up for Empower to track your net worth, analyze your portfolio for excessive fees, and make sure your retirement is on track with their Retirement Planner. I’ve used the free tool to track my finances since I retired in 2012. There is no rewind button in life. Make sure your finances are in order.

Personal Capital Retirement Planner Free Tool
Personal Capital's Free Retirement Planner

Readers, anything else in the SECURE Act you've found helpful to your retirement planning? What else should we be doing with the passage of the SECURE Act?

Subscribe To Financial Samurai

Listen and subscribe to The Financial Samurai podcast on Apple or Spotify. I interview experts in their respective fields and discuss some of the most interesting topics on this site. Please share, rate, and review!

For more nuanced personal finance content, join 60,000+ others and sign up for the free Financial Samurai newsletter and posts via e-mail. Financial Samurai is one of the largest independently-owned personal finance sites that started in 2009. 

49 thoughts on “How The SECURE Act Changes Your Retirement Planning”


    Hi Sam,

    I’m cynical of the SECURE ACT due to the extensive lobbying by the insurance companies and it would be informative to know how much they spent on the same. Also, Under Section 204, if an annuity provider chosen for a 401k plan were to go out of business or defraud plan participants, employees would not be able to sue the employer afterwards so the protections of participants is very limited.

    Just like the Affordable Care Act, Obama Care, was supposed to fix healthcare and amazing how much bashing, indirectly, of Obama Care by Democrat candidates that are vociferous of “fixing” healthcare. In short, they are stating that Obama Care was a failure.

    Similarly, doubtful that the SECURE ACT will significantly improve retirement for the majority of Americans. However, the insurance companies are ecstatic of the SECURE ACT. Oh, the IRS will also benefit greatly by eliminating the stretch IRA.

    Semper FI,

  2. You made the argument that real estate was more secure than money or financial instruments like annuities because they are basically just paper promises while property is a real tangible thing. I’d suggest land ownership is not different and is itself just a paper promise. In the case of land, all you really own is a piece of paper, a deed, that promises that you are the owner. If people stop respecting money and financial Instruments why would you think they will still respect your paper promise deed?

  3. Eric Hakanson

    To me, the elimination of the stretch IRA just makes it harder for the non-truly-rich to do estate planning. A stretch IRA was a simple, cheap, easy way to do pretty good estate planning. No lawyers needed. Without it, you have to be more clever. At least one way is still pretty simple–do Roth conversions over your lifetime (at least during low-tax years), and then have your heirs do the same thing over 10 years.

    The elimination of the stretch IRA also seems to me that it penalizes people who die early–who didn’t have as many years to do Roth conversions.

    The underlying issue, in my mind, is the non-linear (so-called “progressive”) income tax system we have. Making heirs take the money out quicker means they likely will be in a higher tax bracket. Is that really fair, especially for people that died young, so their account balances are large?

    Even more galling to me is that it “only” raises about $16B over 10 years. What is that, like 0.05% of federal tax revenues?

  4. I have already seen a way to avoid paying the taxes on this the stretch IRA issue by making sure your IRA is included in a Trust account you can pass it on to your children through the Trust and then your children can decide how much of the money to withdraw from the Trust. I believe that you can withdraw up to 13k as a gift per year out of a Trust but I would have to double check the tax law. Anyway if you have the money to hire an estate planner you can figure out the loopholes as not all of them have been closed by this new Act. I personally have put most of my money into real estate and I’m attempting to get a Deed that automatically transfer’s my real estate to my Son when I pass on as I live in Washington State and this is allowed here under State law. I have been studying estate planning for years but I have decided to become an enrolled agent to the IRS first before finding an estate planning firm to work for in my area or starting my own business.

    1. IRAs should not be placed in a Trust account. The IRA itself designates a Primary and Secondary Beneficiary.

      Don’t take my word for it, just look it up online or better yet, ask the attorney who prepared the Trust.

  5. I think the “stretch IRA” will continue, at least in a couple of circumstances:

    1. If a minor inherits, they are to immediately start annual RMDs based on their life expectancy (as allowed under the old rules) but are then supposed to switch to the 10-year rule once they reach the age of majority in their state.

    I can see a lot of those in the above situation getting confused and inadvertently sticking with the life expectancy-based annual RMDs.

    2. And the cynic in me notes that an unscrupulous non-spouse beneficiary may elect to set up an inherited IRA at one custodian (never taking a distribution) then several years later to move it to another custodian, moving the date of death to a later year…lather, rinse, repeat.

    I’ve moved an inherited IRA to different custodians and the new custodian always accepted what I told them without requesting any verification.

    1. The new IRA custodian will accept what you tell them, because YOU are responsible for accurate information. Not the custodian. And YOU are responsible for consequences of wrong information.

      The IRS knows where all IRA money is, at all times. If you take a distribution and do not transfer the funds to another custodian, you will be liable for the taxes as well as any penalty (i.e. 10% Federal, 2.5% in CA). And in order to obtain an inherited IRA status for the funds, a death certificate is required.

      1. “And in order to obtain an inherited IRA status for the funds, a death certificate is required.”

        Only when you first set it up…usually at the same firm where the deceased had their IRA.

        But since then I’ve moved an inherited non-spousal multiple times to different custodians…and they’ve always accepted whatever information I’ve given them, no documentation required.

        So, since annual distributions are no longer required an unscrupulous beneficiary now only has to fudge one data point (date of death) when transferring to another custodian in order to extend the stretch beyond 10 years.

        1. Moving an Inherited IRA for a non-spousal inheritor requires a Trustee-to-Trustee transfer. There is no option for a 60-day rollover when inheriting IRA assets.

          You haven’t given incorrect information to new custodians. The information you give (S.S. #, date-of-death, place-and-date of birth, etc.) identify the IRA at the (soon-to-be) former custodian. If you had given incorrect information, the transfer would not go through as requested, and you would face steep financial penalties or full taxation. The ‘data point’ is used to confirm the Trustee-to-Trustee transfer, not to be the basis for the transferred funds.

          Long story short, my familiarity with the subject comes from working with an attorney specializing in Will & Trust, and I have had to shepherd the paperwork for three separate deceased relatives and their inheritors within the past two years. A big hassle, and the main reason I would recommend anyone get a Will & Trust and write a short letter explaining one’s wishes for disposition of assets.

          You can always test out your theory, though, and report back to us what happens!:-)

  6. So if I have student loans from 2012. Could I start a 529 now to save on state taxes and then plow that into my own student loan balance?

  7. My wife and I are lucky enough to have jobs that collectively pay us too much to contribute to an IRA by the current rules. That being said, I don’t like the fact that we together earn less than what 2 single people can earn and contribute to a IRA. Admittedly, I earn more than her, so I am above the cut-off, but not by much.

    To me, the point should that government should promote investing, and thus this tax break would be helpful. We live in the NY area, so salaries are high in my area, but so are costs. For what I do, NY is a good area as there is a lot of work. I guess I just wonder if what would make more sense is if there was a COLA adjustment to such taxes. Perhaps that is too hard to implement or they would not collect enough taxes. What I can say is that I have a friend who lives in the Carolinas, makes less, and lives “better”. What I mean is that is COLA is much less, so his home is larger, but for less money.

    I am not complaining. My parents grew up in poverty in Brooklyn. I was raised, as was my wife, in lower middle class lifestyles. I think it’s plenty fair that I pay more in taxes than my parents did as I make more. I would just like the tax advantage savings of my friend who has the same degree as me, similar job, and just lives in a lower COLA.

    1. You and your wife can contribute to an IRA with post-tax dollars. The tax code does not prevent that. Your best option, assume you do not already have money in an IRA, maybe to contribute to an IRA with post tax dollars and then do a Roth conversion on that IRA/

  8. Hi Sam,

    We just welcomed our second child six weeks ago. Our first child has a 529 in their name as the owner. I am wondering for our second child if we should start the 529 in the parents name and add our child as a beneficiary? I ask because I was reading articles on FAFSA application and they look at the students assets differently rather the parent owned or dependent child owned.

    Which would be better? Can anyone with college age children speak on this?

    Happy New Year!

  9. I’ve always tried to max out my traditional 401k. The idea was to leave it to heirs if at all possible. But if I needed it for retirement, then it would be there. So for estate planning, this new law is upsetting. Now I’m completely uncertain whether to stick with the traditional tax deferred or switch to the Roth. Any thoughts? Doesn’t the Roth look far more attractive now?

  10. The SECURE Act is NOT a net positive. Retirement plans were pretty much always available to all workers and does little to motivate people to save. Financial education is the motivator.

    However, SECURE Act heavily penalizes people who have saved diligently through their life.

    Case in point:

    A 45-year old child is married,
    has a salary of $100,000/year,
    annual expenses of $90,000/year and
    Social Security income of $40,000/year to start at age 67.

    If a $1 million Traditional IRA is inherited by this 45-year old child and the Minimum Required Distributions are reinvested into a brokerage account that pays a 7 percent rate of return.

    Under the existing rules. At roughly age 86, that beneficiary who was subject to the existing law in place still has $2,000,000+.

    Under the new SECURE Act. At roughly age 86, that beneficiary who was subject to the new law has $o.

    This is well illustrated in a recent Forbes article:

    I understand IRAs were never meant to be used for estate planning, however why should the government profit from the original payer’s diligent investing? Just because the original payer is not around to benefit from all that tax free growth the government shouldn’t penalize the beneficiary to take out way more than they need.

    1. To clarify, you think most people have large IRAs and most people pass down these large IRAs to people who never spend them? Therefore, the loss of this outweighs all the other benefits of the SECURE Act?

      If so, perhaps Americans truly are much, much, MUCH wealthier than all the data shows.

      Your response gives me good food for thought that most Americans are practicing Stealth Wealth and are secret millionaires and multi-millionaires who utilize these estate planning strategies for greater multi-generational wealth.

      Can you share with us your age, how you made your millions, and how much you plan to pass on?


      1. I need to thank Donavan for pointing this out. This could definitely affect my son. At this rate he may never move out of my home nor obtain income to produce his own retirement portfolio. He’s currently helping me care for my elderly mother and already assisting my 65 year old husband. If I’m lucky, he’ll eventually assist and care for me. I do have a healthy retirement portfolio that I did expect to take care of him through an inherited IRA once I no longer needed it. I do plan to aggressively rollover to Roth at lower income brackets to avoid high RMDs. Hopefully this will also help him from having high tax deferred distributions over those 10 years. Once beyond that point, if he’s making more than the 0% tax gains, he’ll be fine. I would agree that is penalizing the savers. I’m not sure how the Forbes 86 year old is at $0 vs $2M

    2. I guess I’m contrarian here. As you say, “IRAs were never meant to be used for estate planing.”

      Correct. They were not. Keep in mind that, in most cases, contributions to traditional IRAs and 401(k)s were entirely tax-deferred, i.e., zero taxes were paid at the time of contribution. And the person doing all that contributing benefits tremendously from this during her/his entire lifetime.

      Now the original contributor passes away, and their non-spousal heir(s) gets ANOTHER ten years of tax deferment, for an IRA they NEVER EARNED, they simply inherited. What a tremendous gift!

      And you are irritated that the government finally wants those deferred taxes paid TEN YEARS after the original account holder has passed away?

      This goes beyond the cliche of “first world problems.” No, this is an incredible sense of entitlement that the heirs to this fortune, who did nothing to earn it, should have their entire lives to finally pay the deferred taxes? Or even pass the IRA on to THEIR heirs, still tax deferred??

      I think the SECURE Act has done the right thing. Particularly since our government has returned to rampant deficit spending (which we rarely talk about anymore) I understand we have to raise tax revenues somehow. The national debt just grows and grows through our magical thinking around “free money.”

      But this sense of multi-generational entitlement just kills me. My heirs will be very fortunate to inherit quite a lot from me, and I don’t feel the slightest bit concerned that they will have to pay my deferred taxes. They will still inherit millions!!

  11. We made over 200k this year. Since we contributed max to our 401k it will bring our income under 197. Does that make us eligible for Roth contributions?

    I’m assuming that you believe once you’re maxed out 401k and have the funds contributing to a Roth is okay?

    Also social security is taxed (unless you move!) once you breach a certain income level. Does taking money out of your Roth count as income-even though it is not taxed? In other words, if I am just over a tax bracket in retirement, pushing up the social security taxes I owe, can I choose to take money from the Roth instead and stay in the lesser tax bracket?

    Rudimentary questions from an Aussie not quite used to your tax system.

    I agree that the Roth May end up being a bait and switch. But I think it’s going to be more sly…as in… you’ve got x saved for retirement? No social security for you. Those that ended up saving will be suckers paying for those that made horrendous life choices…too many kids, too much living in the moment and no planning.

    1. Rather than bait and switch, it’s more likely existing Roths would be grandfathered (with the possible exception of having RMDs introduced) and no longer allow contributions or conversions, if and when Congress decides it’s safe to mess with them.

      And it’s probably not so much that the politicians don’t see your heirs as being entitled to the money in your retirement funds, it’s just that it’s likely they don’t care much about that when they see an opportunity to get more money for Uncle Sam without, technically, raising taxes to do it.

      They like this because higher taxes is an easy mantra for voters to get outraged over. Pushing them into higher tax brackets (in this case by forcing them to take money out faster) doesn’t make nearly as good a sound-bite to rally the masses as “No more taxes!” Plus, a lot of rank and file folks won’t immediately understand why they might feel sympathy for someone who has to collect more inheritance money than they want to take all at once.

      Congress is adept at this sort of thing. By some estimates, we pay somewhere around as much in hidden taxes as we do in Federal taxes.

  12. The SECURE Act is the most forward-thinking and helpful government legislation since the MyRA.
    Seriously, Happy New Year to Family Samurai, and all fellow readers! Thanks for such interesting and compelling content and community! Big moves for all in 2020!

  13. Please further explain this bullet point, the string of words doesn’t make much sense to me.

    “Save at least 20% of your after-tax and after tax-advantageous retirement account maximum contribution”

  14. It’s a good start. I would like to see changes with HCE. A while back while working as a tech contractor I noticed that my 401k contributions for that year were automatically withdrawn and in a down year for a net loss. Confused, I contacted my broker and found out I was a Highly Compensated Employee even though I barely broke six figures. My contracting agency employed mostly temps so for them I was highly compensated. As a result my 401k contributions were severly restricted (4k or so) and excess was liquidated and refunded to me.

  15. “For those who inherited an IRA before January 1, 2020, you can defer your tax liability as usual. ”

    Thanks, Sam. It has been very hard to get information about this* and I am in this situation. The last thing I want is massive forced RMDs while I’m a point in my life where my W2 income is very high. It’s good to hear that I won’t have to replan my entire retirement. Thanks again.

    * The clickbait headlines in most financial media stories about this rarely mention if anyone is grandfathered in. The only other thing I was able to find out was that if you are in my situation, the buck$ stop with you – your children won’t be able to benefit as you did.

  16. It’s good to see you addressing the SECURE act, Sam.

    Keep in mind that the change from 70.5 to 72 for RMDs is not the same change for all of us, heh. Those that were born in the first half of the calendar year get a two year delay, those that were born in the second half of the year are not so fortunate, and we only get one additional year.

    Also, on the RMDs, keep in mind that most of us don’t want to take two RMDs in the same year.

    I know that, under the old rules, if I were going to wait to take the first RMD on April 1st of the year I became 70.5, then I would find myself having to take another by December of the same year, doubling my taxable distribution and probably taking me into a higher tax bracket. I don’t feel that was ever made clear enough for the average taxpayer.

    At least now it is simpler.

    Other than that, none of the other points are going to have any impact on me, personally.
    Further, I don’t think I know too many young part-time workers that are interested in 401k plans. They either don’t think they can afford them or the payoff is just too far away for them to value it, yet.

    1. Thanks for clarifying that RMD nuance.

      At the margin, the SECURE Act helps. I’m more pleased the government actually gets the way the work force composition is trending, instead of being stuck in the past.

      Now if the government can lower taxes for residents in HCOLAs, that would be sweet.

      1. Those of us in high cost of living areas will continue to be targeted by both the right (as “elitists”) and the left (as their own, personal piggy banks) for the foreseeable future, unfortunately. I predict our tax burdens will increase rather than the opposite.

  17. Thanks for the breakdown, Sam. Hope your personal posts and podcast continue into the new year.

  18. Financial Freedom Countdown

    Sam, 2 more items I wrote about the SECURE act as net positive
    1) New parents can withdraw $5k each for birth or adoption helping them when they are most stressed.
    2) student Stipends or home care givers can contribute starting their nest egg earlier.

  19. What? Are you telling me I’ve been illegally contributing to an IRA for years?!?! I’ve never read that I can’t contribute to an IRA due to my income…Only that it’s not tax deductible. I have $6000 ready and waiting for Jan 1st for a Roth IRA conversion. If you’re right that I can’t contribute to an IRA, why has my brokerage or tax software not mentioned this?

    1. I don’t know exactly what would happen if you’ve been contributing pre-tax dollars to your traditional IRA and you make over the income limit. Best to talk to your traditional IRA provider.

      I wouldn’t contribute after-tax dollars to a traditional IRA unless unless you’ve already maxed out your 401k, Roth IRA, and already have built a large taxable retirement portfolio.

      You can contribute to an IRA with after tax dollars if you wish, and convert to a Roth IRA later. It’s called a backdoor Roth IRA. But whether you should depends on your tax bracket. I’m anti Roth IRA if your marginal tax rate is over 24%.

      Let me know what your provider says.

    2. Financial Freedom Countdown

      I believe you can still contribute and only that it does not reduce your taxable income. That loophole was not closed I believe.

      I used to do that a long time ago before my work started offering after tax 401(k) option directly.

      Btw if you do the IRA to Roth conversion make sure you don’t have any other IRAs or the amount is pro-rated and subject to taxes.

  20. Seems to me that the change to the 401(k) for part timers isn’t that useful. With so many small businesses in America, most not offering 401(k) or retirement plans, these changes will only create less incentivize to do so if they have to add part timers as well. I’ve seen a shrinking of the medical plans for small employers over the year (they just can’t afford it) and opening those plans to part timers would only exacerbate that problem. I think there is a parallel here. Increasing the top income limits for IRA’s AND allowing individuals to defer $20K per year would be a better solution.

    1. I think the biggest positive is that the government realizes the way we Americans work is changing. Freelance work and part-time work is rising, and the government needs to make some changes to retirement plans as a result.

      I’ve often wondered how in touch congressmen and women really are the ways of the world because they’ve been so focused on gaining money and power for themselves.

      This bill makes it seem like they get winds of change.

      1. Robert N. Webb

        According to the Congressional Research Service, the lid put on the Stretch IRA strategy by the new law has the potential to generate about $15.7 billion in tax revenue over the next decade.

        1. Not huge, but better than a poke in the eye.

          I would think the stretch IRA limit would help encourage folks to spend more money and donate more money while living.

          Hoarding so much money for future generations to not have to work is a shame.

          1. Eric Hakanson

            But you don’t know that’s what the money is for. Maybe it’s for education, or for starting a business, or not having the government take a business away from a family. I don’t think it’s a good idea to jump to conclusions like this.

  21. this is massive tax accelerator for those of us who accumulated through hard work and savings a large ira
    biden wants to eliminate the stepped up basis and warren and sanders want to lower the estate exemption
    whats next, taxing the ROTH???

    1. Well, from their rationalization, the retirement plans aren’t for the inheritors, they are for the retirees. Once the retiree is gone, the retirement plan’s job is done (and the government then feels it might as well be a windfall for Uncle Sam).

      Keep in mind, that the 80,000 people that contribute most of Congress’s campaign funds are probably the 80,000 plus that have 50 million dollars or more. Those contributors won’t be especially worried about how much of their 401k plans will be taxed away, so taking it is a victim-less crime as far Congress goes.

  22. What is the fine print on the ability to pay student loans with a 529? If a parent uses their 529 to pay 10K towards the child’s loan, can each of the grandparents also pay 10K of the same loan?

  23. I haven’t kept up with the news much at all lately so thanks for bringing these changes to my our attention! I remember learning about stretch IRAs a few years ago when I was researching estate planning. Will be curious to see how long they remain discontinued. Good point on never assuming that any type of tax advantage could just up and disappear someday. Makes me really wonder if and when the tax free inheritance amounts will change again.

    Good news on the PT retirement plan access outlook and increased age for mandatory withdrawals. That should have a lot of people!

  24. I don’t think these changes will make a huge difference to me. The only big issue is elimination of the stretch IRA. However, I think we’ll be okay because we’ll have plenty of time to withdraw. Unless I die early, then it’s an issue for my son. Other than that, the other rules won’t affect me.
    The other changes seem good for some people.

  25. Christine Minasian

    My nephew lives in Singapore and when they sell their primary property in Singapore- they cannot take the gains, they HAVE to put the gains in a retirement account. Government rule. Thoughts Sam?

    1. Is it b/c they live in subsidized government housing? We have that in America where if you buy a below market rate unit, you can’t profit at market rate.

      I love Singapore for its low taxes. But phew, property prices are higher than in SF!

  26. The loss of the stretch IRA is a bit of a blow to those who were hoping to use it aid in generational wealth.

    For those that retire early, like I plan to, the extra time before RMD will aid in doing conversions from TIRA to ROTH IRA. So that counterbalances the above negative a bit.

Leave a Comment

Your email address will not be published. Required fields are marked *