Big Changes for Growing Families

Big Changes for Growing Families

Just before the end of the year, a little thing called the Setting Every Community Up for Retirement Enhancement (SECURE) Act was passed into law as part of the end-of-year appropriations bill. Most of the SECURE Act’s provisions went into effect on January 1, and most of us in the industry are still getting our clients up-to-speed on how the act affects their financial lives. In addition to having a snappy acronym for a name, the act significantly impacts retirees with IRAs, families with children (or those planning for children), and those who are inheriting IRAs. We’re covering all three groups in a series of short blog posts this February. 

Younger savers, listen up: Just because you’re decades away from retirement doesn’t mean the SECURE Act doesn’t affect you. The Act has provisions that affect parents, future parents and anyone who might inherit an IRA from someone else. 

Today, let’s talk kids. Do you have them? Want to have them? The SECURE Act has your back. 

First of all, parents can now take a penalty-free qualified birth or adoption distribution of up to $5,000 from eligible 401Ks and IRAs. This would be a taxable distribution and is available whether it’s your first child or your, well…the law didn’t put a limit on this benefit. From now until the law is changed, whenever you welcome a new child into your family, you have the option to take $5,000 out of your IRA or 401K to help with your growing family’s expenses. 

But it doesn’t stop there. One day, that child is going to go to school. And school can be expensive. Enter the SECURE Act’s changes to qualified 529 plan distributions. Previously, parents (or other plan holders) could only withdraw money penalty-free for college expenses and a limited amount of K-12 private-school tuition. Now, 529 plans can also be used to pay for student loans and eligible apprenticeship programs. 

There are some limits, of course: There’s a lifetime maximum of $10,000 for tax-free 529 plan education loan payments per beneficiary. You can’t deduct any student loan interest you paid with a 529 plan distribution from your taxes. And you’ll also need to verify that your student’s desired trade or vocational program is eligible by asking the school and/or checking against the FAFSA and Federal Student Loan Program lists. But these new SECURE Act expansions are giving families more flexibility in how they cover education costs.  

Is your family growing? Want to learn how to better plan for your family’s financial future? Set up time to sit down with one of our wealth advisors to talk about your goals

< Back to Updates