The SECURE Act and Self-Directed Retirement Plans
The SECURE Act, signed into law on December 20, 2019, is comprehensive legislation written to expand retirement savings, simplify existing rules, preserve retirement income, and improve plan administration. SECURE stands for Setting Every Community Up for Retirement Enhancement.
The bill mostly makes significant changes to workplace retirement plans; other provisions affect retirement plans in general, including self-directed IRAs. Here is a look at some of the changes, effective January 1, 2020.
For those who own a self-directed Traditional or Roth IRA:
- Increase in RMD age for Traditional IRAs – The required minimum distribution age is now 72. Individuals who turn 70½ in 2020 would not be required to take a minimum distribution until April 1st of the year in which they turn 72. This only applies to individuals who turn 72 in 2020 or later.
- Contribute to your Traditional IRA longer – Workers age 70½ and older with earned income may now continue contributing to a Traditional IRA—and continue building up retirement savings. This only applies to individuals who are turning 70½ in 2020 and later.
- Tax penalty exemption for birth or adoption of a child – For a qualified birth or adoption, the account holder can withdraw a total of $5,000 as an early distribution without the 10% penalty, when the distribution occurs within one year of the event. Income taxes still apply.
- Graduate student IRA contributions – Certain payments to graduate and postdoctoral students will be treated as earned income for IRA contribution purposes.
- No more stretch IRAs – The lifetime distribution option for certain non-spousal IRA beneficiaries is now eliminated and most non-spouse inheritors who are more than 10 years younger than the deceased IRA owner will be required to take all distributions within 10 years. Exceptions include beneficiaries who, at the time of the account owner’s death, are:
- Disabled or have certain chronic illnesses
- Within 10 years of the decedent’s age
- Minors (10-year payout period begins upon reaching the age of majority)
- Recipients of certain annuitized payments begun before enactment of the SECURE Act.
For business owners who have a SEP IRA, Solo 401k, or other qualified retirement plan:
- Longer deadline to establish a plan – Now employers may establish a qualified plan as late as their business tax filing deadline, including extensions, rather than the last day of the company’s business year. This extension will not apply to certain plan provisions.
- Increase in small-employer plan startup credit – Up to $5,000 per year, effective for 2020 and later taxable years, for employers with up to 100 employees over a three-year period beginning after December 31, 2019. The credit applies to SEP, SIMPLE, 401(k), and profit-sharing plans.
- Automatic enrollment credit – Employers that include an automatic enrollment feature in their new or existing small 401(k) plans or SIMPLE IRA plans will get a maximum annual tax credit of $500 for each of the first three years that the plan is maintained. (Effective for 2020 and later taxable years.)
- Participation by part-time employees – Employees who work at least 500 hours over three consecutive 12-month periods (and who satisfy the plan’s minimum age requirement) must be offered participation in the employer’s 401(k) plan.
All SECURE provisions have tax consequences for individuals and plan sponsors. As always, the team at Next Generation strongly recommends you consult your trusted advisor regarding how the SECURE Act provisions may affect your specific tax situation.
Secure a more diverse retirement portfolio through self-direction
In light of the recent changes, consider including alternative assets within a self-directed retirement plan. Those who are comfortable making their own investment decisions and who understand certain nontraditional investments can build up their retirement savings—and hedge against stock market volatility—with such assets as real estate, precious metals, private equity, hedge funds, private notes, and more.
At Next Generation, we’re here to answer your questions about self-direction as a retirement wealth-building strategy, or how certain provisions of SECURE may affect your self-directed retirement plan. You can arrange a complimentary educational session with one of our representatives, or contact us directly at 888.857.8058 or NewAccounts@NextGenerationTrust.com for more information.
Retirement Plan Contribution Limits for 2020
The 2020 contribution and benefit limits were announced in early November by the IRS. The annual limit for IRAs remains the same at $6,000 with the catch-up contribution for individuals aged 50+ also remaining at $1,000.
There are slight increases for other retirement plans, as follows:
For 401(k), 403(b) and most 457 plans, plus the federal government’s Thrift Savings Plan, the limit is bumped up $500, from $19,000 to $19,500 annually. For individuals aged 50+, the catch-up contribution also goes up $500, from $6,000 to $6,500.
In addition, SIMPLE retirement accounts now have an increased contribution limit of $13,500, up $500 from the current $13,000.
Retirement plan account holders should also be aware of annual limitations and income phase-outs for defined contribution and defined benefit plans in the workplace.
There are new income ranges for determining eligibility to contribute to a Roth IRA and to claim the Saver’s Credit, which all increased for 2020. The income phase-out in 2020 for individuals contributing to a Roth IRA went up for singles, heads of households, and married couples filing jointly. Additionally, taxpayers may be able to deduct contributions from a Traditional IRA if they meet certain criteria. A list of those figures is available in IRS Notice 2019-59.
As always, this new information is strictly for one’s own knowledge, and we encourage individuals to consult their trusted advisors regarding their specific financial situations to determine what works best for them.
Boost your retirement savings with alternative assets
Whether you’re already in the real estate market, invest in precious metals, or are interested in putting private equity in your retirement plan, nontraditional investments are a powerful way to build a more diverse retirement portfolio that provides a hedge against stock market volatility. What many people don’t know is that there are many different types of accounts that can be self-directed to include those nontraditional investments within them. So, if you’ve reached your annual contribution limit on an employer sponsored plan, or an IRA with a brokerage firm, you can still open and fund an account with Next Generation through a transfer or a rollover. Our self-directed IRA specialists are happy to review your options with you.
The deadline to contribute to your retirement plan for the 2019 tax year* is April 15, 2020, but it’s always the right time to contact Next Generation to open your self-directed IRA. You can arrange a complimentary educational session if you have questions about self-direction as a retirement strategy. Alternatively, you can contact our helpful team of professionals directly via phone at 888.857.8058 or email at NewAccounts@NextGenerationTrust.com. You can always read more about the many options and benefits of self-direction on our FAQs page.
*Please visit our website for 2019 contribution limits.
Millennial Business Owners are Fans of Retirement Plans
Here’s something that may surprise you: younger business owners of the millennial generation are putting their employees’ retirement on their radar more so than their older counterparts (Generation X and baby boomers). According to a Nationwide survey, millennials are more aware of the importance of a workplace retirement plan and are nearly twice as likely as the average business owner to say they will offer retirement benefits to their employees in the future (69 percent vs. 36 percent).
Having grown up during the Great Recession, this generation has seen firsthand the importance of planning ahead financially. In addition to their own spending, money management, and retirement savings, they are thinking of their employees’ financial futures as well. The survey revealed that:
- Fifty-seven percent of millennial business owners think it’s their responsibility to help their workers save for retirement, compared to 44 percent of Gen X and 31 percent of baby boomer bosses.
- Fifty-one percent of millennials said a retirement plan is a good recruiting tool in a tight job market, to help attract and retain talent.
- Thirty-two percent of millennial bosses are increasing retirement contributions which is nearly double the overall figure (18% of all business owners).
Self-directed retirement plans for employees and employers
A SIMPLE IRA retirement plan can be established by employers, including self-employed individuals (sole proprietorships and partnerships) for the benefit of their employees. Eligible employees can contribute part of their pretax compensation to the plan. For individuals who are savvy about nontraditional investments, they can include those in their self-directed SIMPLE IRA. As you know, self-directed IRAs allow investors to include a wide range of non-publicly traded alternative assets, such as real estate, precious metals, lending and private equity.
If you are a business owner and would like to offer a SIMPLE IRA to your employees, or open a SEP IRA for yourself—or as an individual, you wish to open a self-directed IRA and build a more diverse retirement portfolio—Next Generation’s team can help you get started. Contact us at NewAccounts@NextGenerationTrust.com or 1.888.857.8058 today!