Guess what! Under the SECURE Act, which was just signed into law in December of 2019, you can now save past the age of 70 1/2 in your IRA for your retirement. It’s a beautiful thing!
In today’s video, I’m talking about what this new rule means for you and retirement strategies to take advantage of it.
Click here to watch the full video or read the full video transcript, below.
The SECURE Act – What’s Changed
The SECURE Act is a bipartisan piece of legislation that was in the works for quite a long time. It’s massive- 1,773 pages long! This document addresses everything from using 529 plan money to repay student loans, all the way to extending the amount of time you can contribute to your IRA accounts.
Prior to 2020, before this act was signed into law, the requirements were this… If you were over 70 1/2, regardless if you were still working or retired, you were capped out. You couldn’t contribute to your IRA account after age 70 1/2. This was challenging for a lot of people because a lot of us are working past the age of 70 1/2 and it would be nice to be able to continue to contribute to retirement accounts.
In the SECURE Act, there’s a provision that addresses this challenge. Starting in 2020, if you are still working and you qualify for IRA or Roth IRA contributions, you can continue to contribute to your IRA accounts.
Retirement Strategy: Work Longer, Save More
There are a couple of planning opportunities here, in terms of your retirement. One is that if you are working longer, even if it’s part time and you qualify for an IRA, you can still put the maximum into an IRA. Let’s say you work until 75, you have several more years where you’re able to save an additional amount of money in your IRA accounts.
Retirement Strategy: Contribute To A Roth
Another planning opportunity is the ability to contribute to a Roth IRA. After you retire, you might go back to work part time and your income could be lower. But you’re still bringing income in and with the cap removed from the IRA, you can continue to save in your IRA accounts.
At this point, you may want to consider saving and putting more money in a Roth instead. With some of the other provisions of the SECURE Act that I talked about in a prior video, the IRA just became a lot less attractive for your beneficiaries who inherit it. A Roth is a good option and even more attractive than it was before, assuming you qualify.
Although you don’t get a tax deduction on the money that goes into the Roth, it does grow tax free from there. Then, when you pull the money out or when your heirs pull that money out, they don’t pay taxes on that money either.
The Rules Have Been Simplified
What is great about this new provision is that it simplifies the rules around the retirement accounts, at least a little. In 401k accounts, you’ve always been able to contribute and continue to make contributions to your 401k, even if you were over age 70 ½ and still working. With the IRA, there was a cap.
The rules weren’t consistent, even though the account types were virtually inseparable in terms of their tax treatment. Now it brings those rules into alignment with each other and it lessens the confusion for everyone. It makes it a lot easier to think through where you might save those monies in the last years of retirement.
If you’re still working, consider making contributions to your IRA accounts to boost your retirement savings. In addition, consider looking at a Roth.