The SECURE Act – What it Means for You

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The “Setting Every Community Up for Retirement Enhancement Act of 2019”, better known as the SECURE Act is quite a mouthful isn’t it!!

The Secure, Act—signed by President Trump on Dec. 20, 2019—brings the most sweeping changes to the US retirement system in over a decade. Most provisions in the law become effective January 1, 2020.

Key Highlights of the SECURE Act

  • The SECURE Act makes it easier for small business owners to set up retirement plans for their employees that are less expensive and easier to administer.
  • Many part-time workers will be eligible to participate in their employer retirement plan.
  • The Act increases the age limit at which retirement plan participants need to take required minimum distributions (RMDs), from 70½ years to 72 years, and allows traditional IRA owners to keep making contributions indefinitely.
  • The Act mandates that most non-spouses inheriting IRAs take distributions that end up emptying the IRA accounts in 10 years.
  • According to the ACT 401(k) plans can now offer annuities.

Key Takeaways

Required minimum distributions (RMDs) now begin at age 72

  • Americans are working longer and will no longer be required to withdraw assets from IRAs and 401(k)s at age 70½.
  • RMDs now begin at age 72 for individuals who turn 70½ in the calendar year 2020.
  • If you turned age 70½ in 2019 and have already begun taking your RMDs, you should continue to take your RMDs.

You can make IRA contributions beyond age 70½

  • As Americans live longer, an increasing number are continuing to work past their traditional retirement age.
  • Under the act, you can continue to contribute to your traditional IRA past age 70½ as long as you are still working. That means the rules for traditional IRAs will align more closely with 401(k) plans and Roth IRAs.

Long-term, part-time workers will be able to join their company’s 401(k) plan

  • Up until now, if you worked less than 1,000 hours per year, you were generally ineligible to participate in your company’s 401(k) plan.
  • Except in the case of collectively bargained plans, the law now requires employers maintaining a 401(k) plan to offer one to any employee who worked more than 1,000 hours in one year, or 500 hours over 3 consecutive years.

Inherited IRA distributions generally must now be taken within 10 years

  • Previously, if you inherited an IRA or 401(k), you could “stretch” your distributions and tax payments out over your lifetime. Many people in the past have used “stretch” IRAs and 401(k)s as reliable income sources.
  • For IRAs inherited from the original owners who have passed away on or after January 1, 2020, the new law requires many beneficiaries to withdraw assets from their inherited IRAs or 401(k)s within 10 years following the death of the account holder.
  • Exceptions to the 10-year rule include assets left to a surviving spouse, a minor child, a disabled or chronically ill beneficiary, and beneficiaries who are less than 10 years younger than the original IRA owner or 401(k) participant.

529 funds can now be used to pay down student loan debt, up to $10,000

  • In some cases, families have money remaining in their college savings plans after their student graduates. Now, they can use a 529 savings account to pay up to $10,000 in student debt over the course of the student’s lifetime.
  • Under the new law, a 529 plan may also be used to pay for certain apprenticeship programs.

You can withdraw up to $5,000 per parent penalty-free from your retirement plan upon the birth or adoption of a child

  • The new law permits an individual to take a “qualified birth or adoption distribution” of up to $5,000 from a 401(k) or an IRA.
  • The 10% early withdrawal penalty will not apply to these withdrawals, and you can repay them as a rollover contribution to an applicable eligible defined contribution plan or IRA.

Small-business owners can receive a tax credit for starting a retirement plan, up to $5,000

  • The new law provides a start-up retirement plan credit for smaller employers of $250 per employees eligible to participate in a workplace retirement plan at work (minimum credit of $500 and maximum credit of $5,000).
  • This credit would apply to small employers with up to 100 employees over a 3-year period beginning after December 31, 2019 and applies to SEP, SIMPLE, 401(k), and profit sharing types of plans.
  • If the retirement plan includes automatic enrollment, an additional credit of up to $500 is now available.
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