SECURE act... changes to retirement accounts

[FutureInternist]

Congress passed the SECURE Act — how much will it actually help people save for retirement?

The proposal is in the government’s year-end spending bill, expected to be voted on in the Senate this week.

www.marketwatch.com

Main points that I got were

No age limit as to contributions to traditional IRA

Required Minimum Distributions start at 72, instead of 70.5 (How does that work for IRAs though... how can you contribute yet still have an RMD?)

Employers are no longer liable, if annuities offered via 401k, fail

Non-spouse beneficiaries of IRA must withdraw all $ within 10 years

10K of 529 $ can be used to pay student loans

Can w/d up to 5K from 401k, penalty free, to cover cost of having or adopting a baby

---

Members don't see this ad.

 

[southerndoc]

The SECURE Act eliminates age limits for contributions. Doesn't make sense though that you have RMD's at 72 and are still able to contribute.

SECURE Act Passed By Full Congress | PLANSPONSOR

Passage of the SECURE Act is being hailed as a major accomplishment that will allow Congress to turn to other important retirement issues next year.

www.plansponsor.com

 

[FutureInternist]

The SECURE Act eliminates age limits for contributions. Doesn't make sense though that you have RMD's at 72 and are still able to contribute.

SECURE Act Passed By Full Congress | PLANSPONSOR

Passage of the SECURE Act is being hailed as a major accomplishment that will allow Congress to turn to other important retirement issues next year.

www.plansponsor.com

I re-read it after your comment.
I think the age limit removal is for IRA only.
I agree that it seems weird that you can contribute and still have an RMD.

I edited my original to reflect this, but I need brighter minds to explain this to me

Thanks

 

[TheHungarianCPAPFS]

Your contributions to the retirement plan and RMD is two different issues. Therefore, depending on your age, and the value of your account you can still contribute more than you take out. I have a client who is putting away about $167K into his 401(k)/Cash Balance plan, but has to withdraw some of it because of his age. Both are based on age and longevity. Here is the difference:

1) Contribution into a 401(K)/Cash Balance or Profit Sharing/Defined Benefit is increases as you get older. The less time you have to work, the more you can put away. For example, a 40 year old person on the same $280K salary, can only put away around $90K (estimated) in total. If you give that salary to a 60-70 year old person the total contributions can go up to as much as $160K in contributions.

2) RMD (Required Minimum Distribution) is based on Uniform LIfetime Tables and given by the IRS on the minimum required amount that you have to take out. See link below.

https://www.fidelity.com/bin-public/060_www_fidelity_com/documents/UniformLifetimeTable.pdf

So, if you have $1M accumulated at age 70, you are required to take out 3.64% of the account (100%/27.4) of your account balance or about $36.5K and pay taxes on it. But if you are still working and have W-2 wages, you can put away about $167K back into the same retirement plan, so you still have a net tax deduction of about $130K. Plus of course the W-2 wages. So as you get older the factor gets reduced and you have to take out more and more of your account balance and pay taxes on it. That's how the math works. Hope this helps.