Q: I own a small business and am considering offering a retirement plan to my employees. I understand there may be some new rules coming about this, but I’m not sure of the details and how it may impact my business. Does this sound familiar to you?
A: Yes, I believe you’re likely referring to current proposals in Washington, D.C., which are part of the SECURE Act.
The SECURE Act: Easier and More Flexible Ways to Save for Retirement
Americans are woefully unprepared for retirement. As survey after survey has shown, the average person is simply not saving enough to provide for a comfortable retirement. That’s why Congress is currently proposing reforms to retirement plan rules.
The House bill, dubbed the SECURE Act (Setting Every Community Up for Retirement Enhancement Act), and the Senate bill named RESA (Retirement Enhancement Savings Act) contain a number of different provisions designed to make plans more accessible and flexible for savers and easier for small businesses to form and administer.
Below is a summary of the legislation’s most significant changes and how they will help more Americans save more for retirement.
• Access for part-time employees. The new rules permit most long-term, part-time workers to participate in their employer’s retirement plan if they have worked at least 500 hours per year for three consecutive years. Additionally, employers are not required to make employer contributions for these participants.
• Longer time to contribute. Although Roth individual retirement accounts (IRAs) have no contribution time limit, contributions to traditional IRAs were not permitted after you reach age 70½. The legislation repeals this age limit so that people working past age 70½ could contribute to both types of IRAs if they wish.
• Later required minimum distributions (RMDs). Before, plan participants and traditional IRA owners were generally required to start withdrawing a minimum amount from their retirement savings each year once they reach age 70½. The new rules increase this age to 72, allowing savers to enjoy tax-deferred compounding even longer.
• Penalty-free withdrawals for birth or adoption of child. This change allows plan participants to withdraw up to $5,000, penalty-free, from their plan accounts following the birth or adoption of a child. Withdrawn amounts can later be recontributed to the plan tax-free, subject to certain requirements.
• Improved portability of lifetime income. For participants whose plan gives them a lifetime income investment option — typically an annuity — the legislation gives them the ability to either keep the annuity or roll it into an IRA or other qualified plan in the event that the annuity option is removed from the plan’s investment lineup. The annuity does not have to be liquidated and the guarantees would be preserved, allowing greater portability.
• No more “stretch” IRAs for non-spouse beneficiaries. Previous rules allowed most IRA beneficiaries to “stretch” RMDs from an inherited account over their own lifetimes. The new rules continue this feature for spouses, but non-spouse beneficiaries will need to take distributions within 10 years of the IRA owner’s death. There are some exceptions to the general rule, however, if the beneficiary is a minor, disabled, chronically ill or not more than 10 years younger than the deceased IRA owner.
• Multiple employer plans (MEPs). The legislation allows employers to combine forces with other unrelated employers to form an MEP. This provision is aimed specifically at small businesses that otherwise could not offer a 401(k) to their employees due to their high administrative costs.
A number of additional provisions target small businesses, making it easier to start and administer a retirement plan. These include tax credits and other changes intended to reduce the amount of paperwork and costs associated with creating and maintaining a retirement plan.
Jeremy R. Gussick is a Certified Financial Planner™ professional affiliated with LPL Financial, the nation’s largest independent broker-dealer.* Jeremy specializes in the financial planning and retirement income needs of the LGBT community and was recently named a 2019 FIVE STAR Wealth Manager as mentioned in Philadelphia Magazine.** He is active with several LGBT organizations in the Philadelphia region, including DVLF (Delaware Valley Legacy Fund) and the Independence Business Alliance (IBA), the Philadelphia Region’s LGBT Chamber of Commerce. OutMoney appears monthly. If you have a question for Jeremy, you can contact him via email at [email protected]
Jeremy R. Gussick is a Registered Representative with, and securities and advisory services are offered through LPL Financial, a Registered Investment Advisor, Member FINRA/SIPC.
This article was prepared with the assistance of DST Systems Inc. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. This communication is not intended to be tax advice and should not be treated as such. We suggest that you discuss your specific situation with a qualified tax or legal advisor. Please consult me if you have any questions. To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial LLC is not an affiliate of and makes no representation with respect to such entity.
Because of the possibility of human or mechanical error by DST Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall DST Systems Inc. be liable for any indirect, special or consequential damages in connection with subscribers’ or others’ use of the content.
© 2019 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved.
*As reported by Financial Planning magazine, June 1996-2019, based on total revenues.
**Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2019 Five Star Wealth Managers.