Lesser known provisions of the SECURE Act
Published 9:11 pm Thursday, March 5, 2020
By Mark McGahee
The SECURE Act passed into law in late 2019 and changed several aspects of retirement investing. These modifications included modifying the ability to stretch an Individual Retirement Account and changing the age when IRA holders must start taking required minimum distributions to 72 years old.
While those provisions grabbed the headlines, several other smaller parts of the SECURE Act have caught the attention of individuals who are raising families and paying off student loan debt. Here’s a look at a few.
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Changes for college students. For those who have graduate funding, the SECURE Act allows students to use a portion of their income to start investing in retirement savings. The SECURE Act also contains a clause to include “aid in the pursuit of graduate or postdoctoral study.” A grant or fellowship would be considered income that the student could invest in a retirement vehicle.
One other provision of The SECURE Act: you can use your 529 Savings Plan to pay for up to $10,000 of student debt. Money in a 529 Plan can also be used to pay for costs associated with an apprenticeship.
Funds for a growing family. Are you having a baby or adopting? Under the SECURE Act, you can withdraw up to $5,000 per individual, tax-free from your IRA to help cover costs associated with a birth or adoption. However, there are stipulations. The money must be withdrawn within the first year of this life change; otherwise, you may be open to the tax penalty.
Annuities and your retirement plan. This might be the most complicated part of the SECURE Act. It’s now easier for your employer-sponsored retirement plans to have annuities added to their investment portfolio. This was accomplished by reducing the fiduciary responsibilities that a company may incur in the event the annuity provider goes bankrupt. The benefit is that annuities may provide retirees with guaranteed lifetime income. The downside, however, is that annuities are often the incorrect vehicle for investors just starting out or far from retirement age.
The best course of action is to make sure that you review any investment decisions or potential early retirement withdrawals with your advisor.
Mark McGahee can be reached at 539-9465 or firstname.lastname@example.org.