Hey everyone, it’s Finance Fridays again. Today, “Let’s Talk About the SECURE Act“.

The SECURE Act

I mentioned it before a little while ago in a previous post. However, it just recently passed through both Congress and the Senate, and Trump signed it into law this week.

There is a lot of little things in this act, but long story short, the general public is behind in regards to retirement. This act is going to change some of the tax-advantaged retirement accounts (for the better).

If you’re a business owner, here are the major changes:

• Easier to set up 401ks, by increasing the cap of auto-enrollment to 15% (from 10%).
• Up to $500 in tax credit for setting up auto-enrollment in 401k or SIMPLE IRA.
• Allow part time employees a chance to sign up if they work 1000+ hours or 500+ hour/year over 3 years.
• Encourage sponsors to include annuities as an option by reducing their liability. (? this one seems a little weird)

For the rest of us:

• Change the required minimum distribution (RMD) age from 70.5 to 72.
• Allow usage of 529s to pay for student loans and registered apprenticeship.
• Allow up to $5000 in penalty free withdrawal when having/adopting a child.

Other stuff:

• Removal of the stretch IRA. You must now payout the entirety of the IRA within 10 years of death. Supposedly, this will raise $15.7 billion in tax revenue and offset the new benefits above.

So what’s your take?

Overall, I think auto-enrollment is very important and we should try to make something like that as easy as possible. Making this easier is great — as well as providing incentives to do so.

For me personally, nothing really changes, except for maybe increasing the RMD to 72.

Allowing the usage of 529s to pay back student loans will be interesting. I’m not sure what scenarios are actually possible/probable. However, here are a few I thought up.

An aggressive min/maxer (read: risk-taker) might take out only the lowest interest student loans and use their 529 to pay off the rest. They would do this in hopes that their remaining 529 funds would outperform whatever student loan interest rate they have. Then they could use their 529 at some future time to pay off their student loans. However, I don’t see student loan rates going down anytime soon, so that may not even be a reasonable option… but you never can tell…

The other scenario would be if a family member had no one to pass their 529 on to, nor plans to ever use it. They could then give it to you, allowing you to pay off your student loans from way back when. Or, perhaps you could can then gift that to your children to pay off their own student loans.

Overall, it just provides additional flexibility for 529s, so I’m all for it.

TL;DR

SECURE Act will go live in 2020.

Just a summary and my take on things.

-Sensei

Agree? Disagree? Questions, Comments and Suggestions are welcome.

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