The “Setting Every Community Up for Retirement Enhancement Act” - SECURE ACT and how it will affect
The SECURE ACT was passed into law at the end of December 2019 and has sweeping changes with regard to retirement plans and how they are distributed to beneficiaries upon the death of the participant. The effective date for SECURE is for participants who passed away after December 31, 2019. (https://waysandmeans.house.gov/sites/democrats.waysandmeans.house.gov/files/documents/SECURE%20Act%20section%20by%20section.pdf)
The goal of the act was to offer small businesses incentives to offer enrollment for their workers, or work with other business and join multiple employer plans.
Some of the major changes that the SECURE ACT made are:
If you have not attained age 70 ½ in 2019, you will not have to take out Required Minimum Distributions (RMDs) until age 72. This will allow some time to consider Roth IRA conversions as well (talk to your financial advisor)
Those over 70 ½ can contribute to their Traditional IRAs a maximum of $7,000 a year and continue to receive a tax deduction (however you cannot use those same monies to then make a charitable contribution – it will be includable in your gross income – make sure you talk to your CPA)
Stretch provisions for many beneficiaries of IRAs and 401Ks have been removed, unless you qualify as an Eligible Designated Beneficiary (Surviving Spouse, Minor Child, Disabled Child, Chronically Ill child or person no less than 10 years the Participant’s junior). If your trust is the beneficiary of your IRA, you should have your estate planning attorney review to consider the implications of SECURE on your estate planning. Any non-Eligible Designated Beneficiary will have a payout over 10 years of an IRA or 401K.
Anyone who is currently receiving RMDs from an inherited IRA, upon their death, the beneficiary will receive a 10 year payout regardless of their status.
Penalty-free withdrawals for childbirth or adoption for distributions after December 31, 2019.
Graduate students can count stipends and non-tuition fellowship payments as compensation for IRA contribution purposes.
If you have a retirement plan that leaves the benefit to anyone other than your spouse, then your plan is likely going to be distributed in a different way pursuant to this legislation. This is the most sweeping change to retirement plans in many years, so if you have any questions, please contact your estate planning attorney to have your documents reviewed and updated.