Setting Every Community Up for Retirement Enhancement (SECURE) Act
The SECURE Act was passed by the House on 12/17/2019 and by the Senate on 12/19/2019. This bill is the biggest piece of legislation on retirement to be passed in a decade and many of its changes are going to come into effect as of December 31 this year. It covers a variety of important retirement accounts and regulations. We think the most relevant changes for our clients are the following:
1. The Required Minimum Distribution (RMD) age for IRA and retirement plans – The bill increases the age for RMDs from 70 ½ to 72. This change does not affect people who will turn 70 ½ by December 31, 2019. The bill also removes the age cap for contributing to an IRA, if you are still working past the age of 70 ½ you can continue to contribute to your IRA. (Dec. 31, 2019)
2. Stretch IRA Changes – The bill removes the benefits of a stretch IRA for most people. A stretch IRA allowed beneficiaries to draw down the account over their lifetime. The bill now limits the drawdown period to ten years. While there are no RMDs from the account during the first nine years after being inherited, the account would have to be emptied by the end of the tenth year. There are exceptions to this rule including; the beneficiary being a surviving spouse or minor child of the account owner or disabled or chronically ill. This change could heavily impact future tax planning strategies. This change does not affect beneficiaries who inherited a stretch IRA before Dec. 31, 2019.
3. New Parents – This bill would allow new parents to withdraw up to $5,000 in the year following the adoption or birth of a child for qualified expenses without triggering the 10% early withdrawal penalty, taxes will apply. (Dec. 31, 2019)
4. Part-time 401(K)s – Employers have been able to exclude part time employees from their 401(K) plans. This bill requires employers to maintain dual eligibility for their 401(K)s. This requires employers who offer a 401(K) to extend eligibility to employees who complete either one year of working at least 1,000 hours or three consecutive years working at least 500 hours a year. (Dec. 31, 2020)
5. Small Business 401(K)s – The bill allows for groups of small businesses to offer multiemployer 401(K) plans which allows them to spread out the costs of creating a retirement plan. (Dec. 31, 2020) This bill also allows for a tax credit for small businesses that create a retirement plan. (Dec. 31, 2019)
6. Annuity Safe Harbor- This bill decreases the liability employers have when offering annuities as part of their retirement plans. This change would allow employers to offer guaranteed lifetime income options (annuities) through their 401(K) plans. (Dec. 31, 2019)
7. 529 Changes – The bill would allow funds from a 529 account to be used to pay up to $10,000 in qualified student debt, or to pay for apprenticeship programs that are registered with the Labor Department. (Dec. 31, 2019)
Please feel free to reach out to us to discuss this in more detail. We will be reaching out to those of you this bill affects on a personal level.