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How to Get Your Money! – from SECURE Act – part 4 of 4

How can college students start saving for retirement? Can part-time workers save tax costs and contribute to retirement? How can you take money penalty-free when adopting? What is happening to minimize savings discrimination for older workers? What are the new uses for 529 savings plans?
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How to Get Your Money!

Working Savers get more Privileges in Retirement Savings Accounts.

Good News, you have more options!

 

Why is this important?

This group of changes is intended to make it easier for savers to control tax costs, save money, and use what they have expanded for good.

The SECURE Act signed December 19th, 2019, is the law for 2020 and beyond. 

Start Saving for Retirement While in College

1. Section 105. Treat Certain Taxable Non-Tuition Fellowship and Stipend Payments as Compensation for IRA Purposes

Stipends and non-tuition fellowship payments received by graduate and postdoctoral students are not treated as compensation and cannot be used as the basis for IRA contributions. The legislation removes this obstacle to retirement savings by taking such amounts that are includible in income into account for IRA contribution purposes. The change will enable these students to begin saving for retirement and accumulate tax-favored retirement savings. 

This is great news to benefit from the long term effects of compound interest.  It may not seem like a lot in a student’s budget, but the early seeds are the ones that produce the most fruit.  And it is rewarding to have some skin in the game early.

 

Part-Timers Get to Contribute to Retirement

2. Section 111. Allowing Long-term Part-time Workers to Participate in 401(k) Plans

Under current law, employers generally may exclude part-time employees (employees who work less than 1,000 hours per year) when providing a defined contribution plan to their employees. As women are more likely than men to work part-time, these rules can be quite harmful for women in preparing for retirement. Except in the case of collectively bargained plans, the bill will require employers maintaining a 401(k) plan to have a dual eligibility requirement under which an employee must complete either a one year of service requirement (with the 1,000-hour rule) or three consecutive years of service where the employee completes at least 500 hours of service. In the case of employees who are eligible solely by reason of the latter new rule, the employer may elect to exclude such employees from testing under the nondiscrimination and coverage rules, and from the application of the top-heavy rules. 

This is another great benefit for everyone to take control of tax costs and sow seeds for the future.  If you are a lower earner, you should consider putting this into a Roth IRA or partially converting your IRA to a Roth IRA.

 

Get $5,000 for Adoptions

3. Section 112. Penalty-free Withdrawals from Retirement Plans for Individuals in 

The legislation provides for penalty-free withdrawals from retirement plans for any “qualified birth or adoption distributions.”  Normally, there is an additional 10 percent tax penalty on distributions that do not meet certain requirements. This penalty does not apply to distributions for a qualified birth or adoption if that distribution does not exceed $5,000 for each birth or adoption. A qualified birth or adoption distribution is any distribution from a plan to an individual within one year of the date of the birth or date of the legal adoption. An eligible adoptee is defined as an individual (other than the child of the taxpayer’s spouse) who is not yet 18 years old or is physically or mentally incapable of self-support.  Also, the individual is allowed to repay any qualified birth or adoption distribution. However, the details will need to be worked out in regulations. 

Note; You will still have to pay income taxes on the money you take from your retirement account.  And depending on how that leaves your taxable income amount at the end of the year, you may want to reconsider.  Ask your CPA how this strategy would affect the bottom line tax costs all things considered before you decide.

 

Protect Older Workers

4. Section 205. Modification of Nondiscrimination Rules to Protect Older, Longer Service Participation

The legislation modifies the nondiscrimination rules with respect to closed plans to permit existing participants to continue to accrue benefits. The modification will protect the benefits for older, longer- service employees as they near retirement. 

This intends to continue the much-needed protection of All Workers.

 

Use 529s for Apprenticeship, Homeschooling and Student Loans

5. Section 302. Expansion of Section 529 Plans

The legislation expands 529 education savings accounts to cover costs associated with registered apprenticeships, homeschooling; up to $10,000 of qualified student loan repayments (including those for siblings); and private elementary, secondary, or religious schools. 

Expanding the use of the 529 plan is encouraging.  In the world of education is in a time of great transition.  The days of apprenticeships being only for skilled trades labor are over.  In today’s world of highly specialized focus and accessible training, internships and apprenticeships are starting to become a replacement for the traditional four-year college degree.  It remains to be seen what specifically qualifies for this new use, but this is good news.

As Promised …

 

1. What you need to know-

Any chance you get, roll your company savings plan to your IRA.

Pay attention to the retirement income numbers, AND ask these questions to keep yourself out of trouble.

Important Retirement Questions: Exit Strategy, Control, & Adapt / Adjust

 

2. How it may or may not affect you-

This should make it easier for you to have more information and hopefully, confidence in your retirement plan.

 

3. What to ask your CPA, Attorney, or Financial Professional-

This biggest challenge on this topic is being certain you’re getting insights from someone who knows the specifics of this particular topic.  Unfortunately, well-meaning professionals are influencing savers just trying to be helpful but giving incomplete or bad information on complicated scenarios they think they know.  Ask these questions to get a better idea of who you are talking to and if their area of expertise is likely to fit your changing needs.

7 Basic Questions You Should Ask Every Financial Advisor You Meet

 

4. How to know if you are doing it right-

Keep asking questions of someone you are comfortable is looking at the big picture AND all the little details of your plan.

Rest assured, as we further evaluate this new piece of retirement legislation, we will continue to give you insights on what you need to know to not miss out on the opportunities that you may benefit from going forward.

More to Come …

George Wells

Ps. As always, when you have specific questions or need specific application insights, drop us a line. Life is too short to not – Retire Happily!

I believe …

If it’s not worth Sharing, it’s not worth Sending. Let us know what you think of how we endeavor to make the complex simple and easy to know you are doing it right 

… And Share it with your friends, family, and even the ones who you think are probably all set. We are all in this Together!

 

Retire Happily!

Reference: Secure Act

Talk to a Sharp Professional at Retire Happily

Obviously, no investment, tax or legal advice is given in this content.  Investment, tax, and legal advice is personal and private.  Investment advice offered through Versaille Capital Advisors, LLC, a Michigan Registered Investment Advisory Firm.

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