Part II: Congress May Have Just Changed Your Retirement Planning

Last week I shared two key ways the rules for retirement planning have just changed based on Congress passing what’s been called the “SECURE Act”. The rule changes I shared last week around distribution age and inherited IRAs can affect a broad audience. Below I share changes that I feel affect a smaller pool of the public, but are still good to know, especially if you’re still in the accumulation phase of life.

1. The “baby” withdrawal – IRS rules state that if you attempt to take a distribution for a qualified retirement account such as an IRA BEFORE reaching age 59.5, then they have the right to assess a 10% income tax penalty on that distribution. There are few exceptions, one of which now includes the “qualified birth distribution.” If you do not have ample savings available to fully fund the birth OR adoption of a child, but do have retirement savings, you can now take up to $5,000 from your retirement savings, free of penalty.
   1. Ideally, all persons have an adequate cash reserve for a major life event such as the birth of a child. But if not, it’s good to know this new rule can help.
   2. I have friends and family who are loving parents through adoption. The process can be expensive. This rule includes the ability to help fund adoptions.

2. Qualified 529 Plan Withdrawals – Perhaps you’ve heard of the 529 college savings plan. It’s one way to set aside dollars for future education expenses. In the past, these dollars could not be used to repay student loans, rather it needed to be used for qualified expenses like tuition, room and board, books, etc. This new law now allows the use of 529 plans to pay up to $10,000 in student debt over the course of the student’s lifetime.
   1. Not all students seek higher education degrees, electing trade schools, apprenticeships, the workforce, etc. I have encountered situations where a parent saved for future education through a 529 plan, only to not fully need the savings account for the intended student. You could change the beneficiary and help a second child pay back loans.
   2. The new rule also allows for a 529 plan to be used to pay for certain apprenticeship programs.

3. Small Business Retirement Plans – The workforce is very different today, than it was 10 or 20 years ago. Many people run or work for small businesses without the benefits of a large corporate balance sheet and 401(k) plans. This new law helps small-business owners set up plans through tax credits (up to $5,000) and also offers the ability to have small businesses join together to offer retirement plans through “Multiple Employer Plans (MEP).”
   1. If you’re a small business owner and have avoided offering benefits based on confusion or high administrative expenses, consider reviewing these options.
   2. If you’re an employee of a small business without benefits, let your employer know this may be an option.

Give us a call if you have questions or concerns.

The opinion voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

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