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The Secure Act

December 21, 2019

The “Setting Every Community Up for Retirement Enhancement” Act (the SECURE Act), was signed into law by the President on December 20, 2019, and significantly modifies many requirements for employer-provided retirement plans, individual retirement accounts (IRAs), and other tax-favored savings accounts.

Repeal of Maximum Age for Traditional IRA Contributions

The SECURE Act repeals the prohibition on contributions to a traditional IRA by an individual who has attained age 70 ½, effective for tax years beginning after December 31, 2019.  This change also effects the rules for qualified charitable distributions paid directly from an IRA.  Please contact our office if you need additional details.

Increase in Age for Required Beginning Date for Mandatory Distributions

The SECURE Act changes the age on which the beginning date for required minimum distributions (RMDs) is based, from 70 ½ to 72 years old.  The provision is effective for anyone who did not attain 70 ½ by the end of 2019. 

Modification of Required Distribution Rules for Designated Beneficiaries – End of the “Stretch IRA” 

Previously, if a retirement account owner died before the required beginning date for RMDs and any portion of the benefit was payable to a designated beneficiary, distributions were generally permitted to be paid over the life expectancy of the designated beneficiary.  Under the SECURE Act, the general rule is that when a retirement account owner dies, the remaining account balance must be distributed to designated beneficiaries within 10 years after the date of death.  This rule applies regardless of whether the account owner died before, on, or after the required beginning date for RMDs, unless the designated beneficiary is an eligible designated beneficiary (e.g. spouse, minor child, etc.) 

Expansion of Section 529 Plans

Any person can make cash contributions to a 529 plan on behalf of a designated beneficiary.  The earnings on the contributions accumulate tax-free.  Distributions from a 529 plan are also excludable from income when used for the beneficiary’s qualified higher education expenses.  The SECURE Act now includes in the definition of qualified education expenses, up to $10,000 (per beneficiary’s lifetime) of payments toward a qualified education loan.  In addition, the SECURE Act allows for tax-free distributions from a 529 plan for apprenticeship programs registered and certified with the Secretary of Labor.  These provisions apply to distributions made after December 31, 2018. 

Other Provisions of Note:

  • Persons having a new baby or adopting a child, may take withdrawals up to $5,000 from their retirement account including a 401(k) or IRA without incurring a 10% tax penalty.
  • The SECURE Act eliminates the kiddie tax calculation that was enacted in the TCJA of 2017.  Thus, estate and trust tax rates are no longer used to calculate a child’s unearned income, instead a child will once again be taxed at the parents’ rates on net unearned income if higher than the child’s rates.
  • Permitting businesses to participate in multi-employer 401(k) plans (MEPs).
  • Increasing the credit for small employer pension plan start-up costs to as much as $5,000.

Please contact our office if you require additional details on the items mentioned above, or any other provisions of the SECURE Act not mentioned here.

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