What younger investors need to know.
Provided by Taylor McClish
The SECURE Act passed
into law in late 2019 and changed several aspects of retirement investing.
These modifications included modifying the ability to stretch an Individual
Retirement Account (IRA) and changing the age when IRA holders must start
taking requirement minimum distributions to 72-years-old.1,2
While those provisions
grabbed the headlines, several other smaller parts of the SECURE Act have
caught the attention of individuals who are raising families and paying off
student loan debt. Here's a look at a few.
Changes for college students. For those who have graduate funding, the
SECURE Act allows students to use a portion of their income to start investing
in retirement savings. The SECURE Act also contains a clause to include “aid in
the pursuit of graduate or postdoctoral study.” A grant or fellowship would be
considered income that the student could invest in a retirement vehicle.3
One other provision of
The SECURE Act: you can use your 529
Savings Plan to pay for up to $10,000 of student debt. Money in a 529 Plan can
also be used to pay for costs associated with an apprenticeship.4
Funds for a growing family. Are you having a baby or adopting? Under the
SECURE Act, you can withdraw up to $5,000 per individual, tax-free from your
IRA to help cover costs associated with a birth or adoption. However, there are
stipulations. The money must be withdrawn within the first year of this life
change; otherwise, you may be open to the tax penalty.5
Annuities and your retirement plan. This might be the most complicated part of the
SECURE Act. It’s now easier for your employer-sponsored retirement plans to
have annuities added to their investment portfolio. This was accomplished by
reducing the fiduciary responsibilities that a company may incur in the event
the annuity provider goes bankrupt. The benefit is that annuities may provide
retirees with guaranteed lifetime income. The downside, however, is that
annuities are often the incorrect vehicle for investors just starting out or
far from retirement age.6
The best course is to
make sure that you review any investment decisions or potential early
retirement withdrawals with your advisor.
Taylor McClish may be reached at (503) 239-3060 or Taylor.McClish@cunamutual.com
This material
was prepared by MarketingPro, Inc., and does not necessarily represent the
views of the presenting party, nor their affiliates. This information has been
derived from sources believed to be accurate. Please note - investing involves
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Citations.
1 - Under the
SECURE Act, your required minimum distribution (RMD) must be distributed by the
end of the 10th calendar year following the year of the Individual Retirement
Account (IRA) owner's death. A surviving spouse of the IRA owner, disabled or
chronically ill individuals, individuals who are not more than 10 years younger
than the IRA owner, and child of the IRA owner who has not reached the age of
majority may have other minimum distribution requirements.
2 - Under the
SECURE Act, in most circumstances, once you reach age 72, you must begin taking
required minimum distributions from a Traditional Individual Retirement Account
(IRA). Withdrawals from Traditional IRAs are taxed as ordinary income and, if
taken before age 59½, may be subject to a 10% federal income tax penalty. You
may continue to contribute to a Traditional IRA past age 70½ under the SECURE
Act as long as you meet the earned-income requirement.
3 -
forbes.com/sites/simonmoore/2019/12/23/if-youre-a-graduate-student-the-secure-act-makes-easier-to-save-for-retirementheres-how/#207d85d322ef
[12/23/2019]. A 529 plan is a college savings play that allows individuals to
save for college on a tax-advantages basis. State tax treatment of 529 plans is
only one factor to consider prior to committing to a savings plan. Also
consider the fees and expenses associated with the particular plan. Whether a
state tax deduction is available will depend on your state of residence. State
tax laws and treatment may vary. State tax laws may be different than federal
tax laws. Earnings on non-qualified distributions will be subject to income tax
and a 10% federal penalty tax.
4 -
forbes.com/sites/simonmoore/2019/12/21/who-benefit-from-the-recent-changes-to-us-savings-programs/#4b86e86f6432
[12/21/2019]
5 -
congress.gov/bill/116th-congress/house-bill/1994/text#toc-HCF4CC8DCF6E14B28968474EB935AB36D
[05/23/2019]
6 -
marketwatch.com/story/will-the-secure-act-make-your-retirement-more-secure-2020-01-16
[01/16/2020]. The guarantees of an annuity contract depend on the issuing
company’s claims-paying ability. Annuities have contract limitations, fees, and
charges, including account and administrative fees, underlying investment
management fees, mortality and expense fees, and charges for optional benefits.
Most annuities have surrender fees that are usually highest if you take out the
money in the initial years of the annuity contact. Withdrawals and income
payments are taxes as ordinary income. If a withdrawals is made prior to age 59
½, a 10% federal income tax penalty may apply (unless an exception applies).