New SECURE Act Significantly Impacts Retirement Accounts

The Setting Every Community Up for Retirement Enhancement Act of 2019 (“SECURE Act”) was passed by Congress and signed into law by President Trump on December 20, 2019.  The SECURE Act takes effect on January 1, 2020, and will have far reaching impact for the owners and beneficiaries of IRAs, 401(k)s, profit sharing and/or 403(b) accounts (collectively referred to as “qualified retirement accounts”).  The following is a brief summary of some of the most significant changes that may affect you and your family. 

Removal of Traditional IRA Contribution Age Limits

Previously, contributions to Traditional IRA plans were prohibited after age 70 ½.  Beginning in 2020, anyone with earned income may contribute to a Traditional IRA.  However, the age at which an individual can make a Qualified Charitable Distribution from their IRA remains at 70 ½.

Required Minimum Distribution Changes During Lifetime

Under current law, owners of qualified retirement accounts (except Roth accounts) were required to begin receiving distributions (known as Required Minimum Distributions or “RMDs”) from their account at age 70 ½ (often referred to as the “Required Beginning Date”).  The SECURE Act extends the Required Beginning Date for RMDs to age 72.

Inherited IRA Accounts

Under current law, distributions from qualified retirement accounts upon the death of the account owner can be stretched out and taxed over a qualified beneficiary’s life expectancy.  In simplest terms, all individuals and certain trusts were considered qualified beneficiaries. 

As of January 1, inherited qualified retirement accounts must be distributed over no more than 10 years, thereby significantly limiting the number of years of tax-advantaged growth the beneficiary can enjoy.  However, the Act includes limited exceptions to the 10-year payout rule for spouses and “eligible designated beneficiaries” (such as minor children, disabled or chronically ill persons). 

Trust Beneficiaries

The SECURE Act also affects the rules that govern distributions from qualified retirement accounts to trusts.  Anyone who has named a trust as a beneficiary of their retirement accounts should speak with their estate planning attorney to review how these changes might affect their planning. 

Other Changes

Greater Access to 401(k) Plans for Part Time Employees

The SECURE Act provides that part-time employees who work either 1,000 hours throughout the year or have three consecutive years with 500 hours of service are now eligible to enroll in their company’s 401(k) plan.

Penalty Free Withdrawals after a Birth or Adoption

Generally, early withdrawals from retirement accounts incur penalties unless it qualifies for an exception.  The SECURE Act adds a new exception that allows an account owner to withdraw up to $5,000 penalty free upon the birth or adoption of a child.

529 Plans to Pay Student Loans

The SECURE Act allows tax-advantaged 529 accounts to be used to make qualified student loan repayments (up to $10,000).

The SECURE Act is one of the most significant changes to the rules governing retirement savings in many years.  We welcome you to call our office if you would like to schedule an appointment to discuss how the SECURE Act may affect you.