SECURE Act

SECURE Act

January 1, 2020

Relatively few Americans participate in workplace retirement plans, and many don’t have a retirement plan to participate in even if they wanted to.  The SECURE Act was passed in late 2019 to help avoid a future retirement crisis by making it easier and less expensive for businesses to set up retirement plans and incentivize workers to save for retirement.  The act also makes it possible for part-time employees who meet certain qualifications to participate in employer sponsored retirement plans, which is especially important for many workers today.

The SECURE Act went into effect on January 1, 2020, but there will be a few years of adjustment as previous retirement laws are phased out.  The below information is meant to provide an overview of important changes affecting retirement planning and other items, and we are happy to discuss with you in further detail.  As always, we remind you to consult your tax, legal, and other advisory professionals about your personal situation before making major financial decisions.

Changes Impacting Individuals

Retirement Planning:

• Elimination of “stretch” provision for most inherited IRAs
  • • Previously, non-spouse benficiaries could take distributions over their life expectancy. For most new inherited IRAs created in 2020 and moving forward, beneficiaries will have 10 years to deplete the account.
• Contributions can be made to traditional IRAs after age 70 ½, as long as you have earned income to contribute.
• The age at which Required Minimum Distributions (“RMDs”) begin has increased from 70 ½ to age 72.
  • • Qualified charitable distributions may still be made from IRAs beginning at age 70 ½.
    • This applies only to distributions required in 2020 and beyond. If you were 70 ½ or older in 2019 and took an RMD, you must still fulfill your RMD in 2020, 2021, and so on.
• Workers whose income is based on tax-exempt “difficulty of care” payments can participate in retirement plans and IRAs by treating their difficulty of care income as taxable for the purpose of calculating contribution limits.

Penalty-free IRA or 401ks distribution for birth or adoption:

• A penalty-free in-service withdrawal of up to $5,000 may be taken from your retirement plan in the year of your child’s birth or adoption finalization
  • • This will be treated as taxable income.

Changes to 529 plan provisions:

• Up to $10,000 can be used from a 529 plan to pay for student loan expenses or to pay down student loan debt.
• Certain apprenticeship expenses qualify
• Up to $10,000 may be used to pay student loan debt of a beneficiary and each of a beneficiary’s siblings.

Changes Impacting Businesses & Business Owners

Employer Sponsored Retirement Plans:

• Automatic enrollment safe harbor raised to contribution cap of 15% of pay
• Long-term part time employees who meet certain requirements can participate in employer’s 401(k) plan
• Employers may establish retirement plans up to the due date of the employer’s tax return
• Two or more unrelated employers may join a pooled employer plan to reduce administrative costs.
• New minimum funding standards for community newspaper plans to reduce annual amount community newspaper employers are required to contribute to their pension plans.

Tax Credits:

• Tax credit for small businesses that establish an employer sponsored plan
• Tax credit for establishing automatic enrollment & maximum contribution increased to 15%

Annuities as Plan Products:

• If an annuity is phased out of an employer’s retirement plan, a participant may take an in-service distribution to roll the product to a rollover IRA.
• Fiduciary safe harbor for annuities: plan fiduciaries may rely on written representations from insurers regarding the insurers’ financial capabilities.