ROCKFORD (WREX) — A new tax law signed on December 20 will begin affecting retirement funds at the start of 2020.
It's called Setting Every Community Up for Retirement Enhancement, or the SECURE Act, is set to take effect on January 1, 2020.
"So, it's a retirement enhancement act that simplifies retirement planning," says Michael Cyrs, Savant Capital Management director of wealth advisory. "But yet makes it more advantageous to tax payers."
If your plan is to leave your IRA balance with someone who is not your spouse or a direct dependent, there is a strict timeline on when that money must be used.
"Under the new law, all distributions from retirement accounts will have to be made within ten years of the time of death," says Cyrs.
There are specific exemptions to this rule including beneficiaries who are chronically ill, disabled, children under 18, and those who are not more than 10 years younger than the account holder.
Financial advisors say this act is pro-taxpayer and levels the playing field for those who cannot afford financial counseling. Cyrs says the SECURE Act restores the original intent of retirement accounts.
"And that was that they be a resource to save for an individual's retirement or for their spouse's retirement, but not for grandchildren not for other generations."
The law also allows you to put off receiving minimum payouts until age 72 and to continue adding to the account past age 70.5.
"This allows for those workers to continue saving capital on a pretax basis," says Jakob Loescher, Savant Capital Management financial advisor. "When they might be in their higher income earning years."
Student loan debt, costs of being a new parent and part-time employees are all addressed in the SECURE Act.
Small businesses can even cash in with a tax incentive that allows them to provide retirement benefits for employees.
"It allows for more of the small businesses to adopt a traditional 401K," says Loescher. "But instead of the otherwise high administrative costs and things which would be burdensome for an otherwise small employer they can adopt a multi-employer plan."
Experts recommend seeking financial advice if you feel the new law will affect your financial plans.