How to Get Your Money! – from SECURE Act – Part 4/4

How to Get Your Money!
Working Savers get more Privileges in Retirement Savings Accounts.Show more

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.

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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 to 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.

Read this article on our website: https://retirehappily.net/how-to-get-your-money-from-secure-act-part-4-of-4/

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