The SECURE Act

By Ryan Turbyfill, MBA

The Setting Every Community Up for Retirement Enhancement (SECURE) Act was signed into law on Friday, December 20^th, 2019, making historic changes to how Americans save for retirement.  There are many changes, but below are details of the most impactful.  Much like the Tax Law change in December of 2017, many of these changes in the law still need to be implemented and put into practice and code by the IRS.  Therefore, I state many times below “it appears to be” as the implementation of such is to be seen as it unfolds and integrated into code by the IRS.

Below are 4 of the most impactful changes:

1. Required Minimum Distributions (RMD’s) will start at 72 instead of 70 ½ years old.  Starting January 1, 2020 the requirement for starting to withdraw money from traditional retirement accounts moves from 70 ½ to 72 years old, allowing for another 1.5 years of tax-free growth before the started of Required Minimum Distributions. 

It appears that if you are 70 ½ prior to Jan 1, 2020 or older, you should not stop or interrupt their RMD and follow with the scheduled withdrawals under current rules.  But if you turn 70 ½ on or after Jan 1, 2020 are subject to the new law and have an extra year and a half before needing to start withdrawals.

2. Traditional IRA contributions can now be made for those over 70 ½.  The new law removes age restriction of those who can contribute to a Traditional IRA.  There were no age restriction and continue with none for Roth IRA’s.  Many over 70 ½ continue to work to either build for full retirement or continue to work where they enjoy.  Now they can continue to contribute to an IRA, as long as they have the earned income to do so and appears to be for tax year 2020 and after.                                                                                                                                                                          
3. Beneficial IRA’s are one of the biggest losers to the new changes.  Prior to the new law, the “stretch IRA” allowed someone who inherited an IRA to take distributions over their lifetime, also stretching the taxes on such withdrawals.  As of Jan 1, 2020 all new beneficial/inherited IRA’s have to be distributed over 10 years.  These “stretch IRA’s” were used for estate planning at times to pass along an IRA to an heir who could spread taxes over their lifetime.  Now new strategies and considerations will part of the discussion.

It appears the new law is not retroactive and doesn’t apply if you already have a Beneficial/Inherited IRA.  Certain exemptions are made under the new law which include spouse, disabled and minor beneficiaries.

4. Employees of Small Business or Part Time Workers may now be offered a 401k, where they may not have had one prior.  401k’s carry expenses that many small businesses can’t afford, but now they have options to spread that cost with other small businesses.  The new law allows multiple companies to band together to split the cost of such a plan, making it more affordable to offer to employees.

Also, the bill required employers to offer 401k to part time workers who work at least 500 hours a year for three consecutive years or 1,000 hours in one year.

More detailed changes include IRA withdrawal for birth or adoption, expands 529 allowed education expenses and many more.

If you’re a Plan Sponsor, please feel free to reach out to go over those changes as there are in depth changes within Employer Plans such as 401k’s, Safe Harbor, tax credits, etc. 

The SECURE Act creates a lot of investing and planning opportunities and look forward to discussing with how they can be used to help you reach your financial goals.

**This is not deemed to be Tax or Legal Advise**

For more information on the SECURE Act, click here