Here’s some good news for your eventual retirement: Congress is trying to make it easier for you to save for that day when you can finally leave your briefcase behind and kick back on the beach.
The Setting Every Community Up for Retirement Enhancement Act of 2019, also known as the SECURE Act, got lumped into the government’s year-end spending bill, which was approved by the House of Representatives this week. Next it goes to the Senate, which is expected to approve it before the holiday break.
What’s in the legislation? A whole lot of new rules that make it easier to save for retirement. Let’s take a look at a few of the highlights:
Changes to retirement contributions
Employees who work part-time at a business that offers a 401(k) will be able to participate in that plan. Eligibility can be determined in two ways:
1. The employee works less than 1,000 hours per year for at least one year, or
2.The employee works at least 500 hours per year for three consecutive years.
Small businesses will be able to get a $500 tax credit for creating new 401(k) or SIMPLE IRA plans that include automatic enrollment. Small employers who already offer retirement savings plans can convert them to automatic enrollment to get the credit. The credit will be available for three years.
Graduate and postdoctoral students who receive taxable non-tuition payments (like fellowships or stipends) will be able to use that income toward IRA contributions. These financial awards are often exempt from income tax, which makes the student ineligible to contribute to an IRA.
Some home healthcare workers who are tax exempt because their income is considered “difficulty of care” payments will be able to contribute to an IRA.
Changes to retirement distributions
The act removes the maximum age you can contribute to a traditional IRA (currently 70.5).
It also increases the the age where retirement distributions become mandatory from 70.5 to 72.
The act allows penalty-free withdrawals from retirement plans in the event of a birth or adoption. Currently, early withdrawals that aren’t for tuition, buying a home, a funeral, or a designated hardship have a 10% penalty on top of the normal tax rate.
An extra bonus for education
The legislation expands 529 education savings accounts to cover the costs of apprenticeships, homeschooling, up to $10,000 in student loan repayment, and private elementary or secondary schools.
Of course, passage in the Senate and approval by President Trump does not put these policies into effect immediately—change takes time. But you’ll want to keep an eye out for changes as the new rules get implemented.
