The SECURE Act as Enacted – The New Rules for Retirement Plans

The much-anticipated SECURE Act (Setting Up for Retirement Enhancement Act) (the “Act”) finally passed both houses of Congress and was signed into law by the President on December 20, 2019, becoming effective on January 1, 2020. As we discussed in an article late last year, the SECURE Act “reforms” retirement savings rules with the goal of increasing access to tax-advantaged accounts and giving older Americans increased opportunities to maximize their savings. A few of the key points of the new Act are discussed below and we urge you to consider how these changes impact your retirement savings strategy and estate plan. 

RMDs Bumped to Age 72: The Act pushes back the age at which retirement plan participants must take required minimum distributions (RMDs). Previously, RMDs started at age 70½ and now they can be delayed until age 72. This extra year-and-a-half of growth on retirement savings will be almost universally beneficial in helping people make their money last longer.

No Age Restrictions on Contributions: As expected, the age cap for making contributions were eliminated so that anyone who is working and has earned income can contribute to a traditional IRA, regardless of age. 

Part-time Employee Access: Many more part-time workers will be eligible to participate in an employer plan under the new Act. Part-time employees who work either 1,000 hours in a year or have three consecutive years with 500 hours of service will be eligible to sign up for an employer offered 401K or a Simple IRA plan. 

The Down-Side: The Act eliminates the “stretch IRA” option for non-spouses inheriting retirement accounts, instead of requiring a full payout within 10 years of the original account holder’s death. Thus, most beneficiaries will be required to draw down assets more rapidly than under previous rules, possibly losing out on years of compounding investment growth. Limited exceptions now include assets left to a surviving spouse, a minor child, a disabled or chronically ill individual, and beneficiaries who are less than 10 years younger than the decedent. 

The Up-Side: The Act makes it easier for small business owners to establish “safe harbor” retirement plans with provisions that make plans less expensive and easier to administer. Employers who create a 401K or Simple IRA plan with automatic enrollment can receive a tax credit of $500 per year. By encouraging more employers to offer 401k plans, the Act aims to increase access to and participation in employer-sponsored retirement plans. 

Other up-sides include allowing the use of 529 accounts to repay up to $10,000 in student loans annually (which can be applied retroactively to December 31, 2018), and a penalty-free withdrawal of up to $5,000 from a 401k to pay the cost of adopting a child. 

For a free consultation to discuss how the changes introduced by the SECURE Act may impact your business, your retirement accounts, and the value your assets will yield to beneficiaries, call our office today. Through intentional and informed planning, you can have the peace of mind you deserve.