Get the 411 on the SECURE Act

The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 is intended to strengthen retirement security across the country. The provisions of the SECURE Act took effect January 1, 2020, and are commonly seen as the most significant changes to retirement legislation since the Pension Protection Act of 2006. 

While the SECURE Act addresses a wide variety of retirement planning topics, here are few of the key provisions of the legislation that can impact your retirement savings. 

 

Age Change for Required Minimum Distributions

Under the SECURE Act, account owners must begin withdrawing from traditional IRAs and employer tax-deferred accounts, such as 401(K)s, 403(b)s, and 457s, beginning at the age of 72. Previously, the required minimum distribution age was 70 ½. The age change applies only to those born on or after July 1, 1949.

 

Age Change Traditional IRA Contributions

The SECURE Act also eliminates the maximum age for traditional IRA contributions, which was previously capped at 70.5 years old. Provided you have earned income, you can now contribute to your traditional IRA in the year you turn 70 ½, and beyond. 

 

Stretch IRAs are Limited and May Impact Your Heirs

A non-spouse beneficiary is no longer able to “stretch” the required minimum distribution from an inherited account over their lifetime. This potentially allowed the funds to grow tax-free for decades. The stretch IRA legislation requires that distributions to non-spouse IRA beneficiaries be made within 10 years. There are exceptions for spouses, disabled individuals, and individuals not more than 10 years younger than the account owner. Minor children are also exempted, but only until they reach the age of majority. The changes apply to beneficiaries of someone who dies after the end of 2019. 

 

New Exemptions for Premature IRA Distribution Penalty

Current law imposes a 10 percent penalty on premature IRA distributions, which are  distributions before the participant or owner is 59½. There are exemptions from this penalty tax, and the SECURE Act adds to the list of exemptions. Penalty-free withdrawals of up to $5,000 can now be taken from qualified plans and IRAs to help cover costs for childbirth or adoption expenses, and repayment is permitted. 

 

Expanding Access to Multiple Employer Plans for Small Business

The SECURE Act widens access to multiple employer plans for small business by removing the requirement that they share “a common characteristic”, such as being in the same industry. These plans are also more readily available to long-term part-time workers with a lower number of hours worked. The legislation drops the threshold for eligibility down to one full year with 1,000 hours worked or three consecutive years of at least 500 hours. 

Small employers also will get a tax credit to offset the costs of starting a 401(K) plan or SIMPLE IRA plan with auto-enrollment, in addition to the start up credit they already receive. Auto-enrollment is a simple, but effective measure to encourage people to save for the future. 

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Schedule a complimentary meeting with Don to review your existing retirement plan and identify any changes that might be necessary as a result of the SECURE Act of 2019.