By John Drachman
The nation’s youth are discovering that major retirement plan legislation isn’t just for their Baby Boomer parents anymore.
The first signs that something positive from the SECURE Act was in the wind for Millennials occurred after last summer’s media backlash over the Act’s wholly plausible “backdoor tax increases.” However, after looking beyond the tightening of the “stretch rule” timeline that had allowed IRA beneficiaries to spread out withdrawals to limit tax exposure, some of the Act’s benefits to youthful savers gradually came into focus.
The first major retirement legislation since the 2006, most of the Act’s provisions zeroed in on mom and dad, their annuities and Required Minimum Distributions. Still the Act’s stated goal in part was to extend the benefits of retirement investing to career-starters. Accordingly, the Act seems set to benefit Millennials in three big ways:
- …And Take That Retirement Plan with You. Millennials represent a growing percentage of workers in what’s been labelled the “Gig Economy” – part-time assignments from multiple employers. At the American College of Financial Services’ Retirement Income Center, Co-Director Steve Parrish discussed how youthful gig workers will tap into the Act’s advantages. “The Act’s new Multiple-Employer Plan (MEP) provisions… will make it easier for small companies and gig economy setups to join small plans and offerings.”
- Payoff That Student Debt with Your 529 Plan. Millennials may be the best-educated – and the most indebted generation – in U.S. history. Ross Riskin, Assistant Professor of Taxation at The American College, said the SECURE Act lets investors use their 529 plans to repay student loans tax-free at the federal level to a lifetime limit of $10,000 per beneficiary. Such“Qualified Education Loan Repayments” will now be viewed as a qualified educational expense. There’s a benefit for the non-college-bound high school grad as well. Plan assets may be deployed to help develop skills through a qualified apprenticeship. And, as if in recognition that “what comes around goes around,” the Act lets graduate or post-doctoral students count taxable non-tuition fellowship and stipend payments as compensation for IRA contribution purposes.
- Go Ahead, Start That Family. With Graco 4Ever child car seats topping out at $314, it’s easy for a gig-working Millennial to think twice about getting another generation underway just yet. However, as the U.S. birthrate plummeted to its lowest point since the stock market crash of 1987, Uncle Sam decided to lend a helping hand to youthful couples hankering for the patter of little feet. Thus, a new exception to the 10% early distribution penalty for IRAs was born, allowing up to $5,000 to be distributed penalty-free from an IRA or retirement plan as a “Qualified Birth or Adoption Distribution.”
And even though retirement is a long way off for Millennials, the SECURE Act is providing some solid ways to plan for their future. Keep in mind, the amounts “borrowed” from retirement and education plans should find their way back into the account to preserve tax-deferred savings for future needs. There is much still to evaluate about the long-term impact of the bill – an exploration best undertaken with some assistance from a financial professional and plenty of Googling. For more SECURE Act insights don’t miss our recent MPFA post, Cracking the SECURE Act: Five Takeaways for Retirement Investors in 2020.
John Drachman is a contributing writer to MyPerfectFinancialAdvisor the premier matchmaker between investors and advisors .John is an IABC award-winning writer, who applies his 30 years of financial marketing experience toward advancing the dialog between investors and investment professionals.