In December 2019, The SECURE Act was made into law, impacting many areas for American’s retirement. Some of those changes impact dentists both as employers and as individuals. Here are the high points of the SECURE Act that most doctors should know about.
As an individual
- You can now contribute to an IRA past the age of 70.5. Previously, you could not make IRA contributions beyond age 70.5 but now you have the option to continue saving money and gaining some tax benefits later in life.
- You can delay taking your first required minimum distribution (RMD) until age 72 (previously 70.5). This means that if you turn 70.5 after January 1, 2020, you can wait until you’re 72 to take your RMDs and defer taxes a little longer.
- If you leave your retirement accounts to someone other than your spouse, those who receive it will deal with tougher tax issues eliminating the “stretch IRA.” Previously, a person could leave his or her retirement accounts to someone other than a spouse, allowing that person to “stretch” out the taxes over life. Now, those non-spouses have to take all of that inherited money within 10 years, meaning a larger tax bill, unless the beneficiary is a minor or is disabled.
- If you have a child or adopt a child, you can withdraw up to $5,000 ($10,000 per couple) penalty-free from your 401(k) or your IRA, which you are allowed to pay back.
As an employer
- There are now increased tax credits to $5,000 from $500 for startup costs to establish a new retirement plan. So, if you’re interested in starting a retirement plan for your practice, you’ll get a bigger break on the qualified costs to get it going.
- Beginning in 2021, some part-time employees will be eligible to participate in your 401(k), but they must be long-term (1,000 hours in one year, or 500 hours in three consecutive years.) If you already have a retirement plan in place, your part-time folks could be eligible starting in 2021. Talk to your advisor to get ahead of the curve.
- Your 401(k) must provide an estimated lifetime income at least once a year. In most cases, the company managing your 401(k) will take care of this requirement, and some already do this for participants. Just double check that they are on it.
- Your 401(k) can include annuity options (for lifetime income) but the employer holds some liability on annuity provider choice. Annuities provide stable income guaranteed by an insurance company. If you add this feature you hold some liability in the choice of insurance company and its ability to guarantee a participant’s income.
- It will be easier to join a multiple employer plan (MEP) which could substantially save plan administration costs and reduce your liability as a fiduciary. MEPs have generally been offered to associations to pool their 401(k)s together for buying power. The SECURE Act takes away the requirement that MEPs be offered through associations, potentially allowing like groups to form a retirement plan without an association.
Navigating retirement planning, both personally and as an employer, is complex. There are several moving parts and considerations to determine the best option for you and your practice. If you have questions about working out your best option, feel free to contact me at [email protected] or (865) 357-7373.
Will Parrish, a Certified Divorce Financial Analyst (CDFA), is a founding partner of Slate, Disharoon, Parrish and Associates LLC, located in Knoxville, Tennessee. The firm specializing in services for medical professionals, business owners, and corporate executives, and divorce financial planning. Feel free to contact Will with questions at [email protected] or by phone at (865) 357-7373. Visit their website at sdp-planning.com. (Securities offered through Registered Representatives of Cambridge Investment Research Inc., a broker/dealer, member FINRA/SIPC. Advisory services offered through Cambridge Investment Research Advisers Inc., a registered investment advisor. Slate, Disharoon, Parrish & Associates LLC and Cambridge are not affiliated.)