Quick Summary

The SECURE legislation — which stands for “Setting Every Community Up for Retirement Enhancement” — puts into place numerous provisions intended to strengthen retirement security across the country. As part of a larger government spending package, which was signed into law on December 20, 2019, Congress included provisions from the Setting Every Community Up for Retirement Enhancement (SECURE) Act. Most provisions in the law go into effect on January 1, 2020.

Key Provisions

  • Repeals the maximum age for traditional IRA contributions, which is currently 70½.
  • Increases the required minimum distribution (RMD) age for retirement accounts to 72 (up from 70½).
  • Allows long-term, part-time workers to participate in 401(k) plans.
  • Offers more options for lifetime income strategies.
  • Permits parents to withdraw up to $5,000 from retirement accounts penalty-free within a year of birth or adoption for qualified expenses.
  • Allows parents to withdraw up to $10,000 from 529 plans to repay student loans.

Required minimum distributions (RMDs) now begin at age 72
Americans are working longer. You will no longer be required to withdraw assets from IRAs and 401(k)s at age 70½. RMDs now begin at age 72 for individuals who turn 70½ in this calendar year. If you turned age 70½ in 2019 and have already begun taking your RMDs, you might want to speak with your tax advisor regarding ongoing distributions.

You can make IRA contributions after age 70½
As Americans live longer, an increasing number are continuing to work past traditional retirement age. You can now continue to contribute to your traditional IRA past age 70½ as long as you are still working.

Long-term, part-time workers can join their company’s 401(k) plan
Previously, if you worked less than 1,000 hours per year, you were generally ineligible to participate in your company’s 401(k) plan. The law now requires employers with a 401(k) plan to offer one to any employee who worked more than 1,000 hours in one year or 500 hours over 3 consecutive years.

“Stretch” IRAs are over – Inherited IRA distributions generally must now be taken within 10 years
Previously, if you inherited an IRA or 401(k), you could “stretch” your distributions and tax payments out over your single life expectancy. Many people have used “stretch” IRAs and 401(k)s as reliable income sources. Now, for IRAs inherited from original owners who have passed away on or after January 1, 2020, the new law requires many beneficiaries to withdraw assets from an inherited IRA or 401(k) plan within 10 years following the death of the account holder. There are certain exceptions to this new rule.

Small-business owners can receive a tax credit for starting a retirement plan, up to $5,000
This credit would apply to small employers with up to 100 employees over a 3-year period beginning after December 31, 2019 and applies to SEP, SIMPLE, 401(k), and profit-sharing types of plans. If the retirement plan includes automatic enrollment, an additional credit of up to $500 is now available.

You can withdraw up to $5,000 per parent penalty-free from your retirement plan upon the birth or adoption of a child
The new law permits an individual to take a “qualified birth or adoption distribution” of up to $5,000 from an applicable defined contribution plan, such as a 401(k) or an IRA. The 10% early withdrawal penalty will not apply to these withdrawals, and you can repay them as a rollover contribution to an applicable eligible defined contribution plan or IRA.

529 funds can now be used to pay down student loan debt, up to $10,000
In some cases, families have money remaining in their college savings plans after their student graduates. Now, they can use a 529 savings account to pay up to $10,000 in student debt over the course of the student’s lifetime. Under the new law, a 529 plan may also be used to pay for certain apprenticeship programs.

There are other changes in the SECURE Act that could impact workplace retirement savings plans.

What it could mean for you:

  1. If you are turning 70½ in 2020 and had planned on taking an RMD, you may want to work with your financial advisor and tax advisor to reconsider your withdrawal plans.
  2. Maximize your allowed retirement contributions for this tax year.
  3. If you work part-time and haven’t been eligible to participate in a 401(k) to date, ask your employer or HR department how and when you can enroll.
  4. If you’re a small-business owner and have not yet established a retirement plan for your employees, consider taking advantage of the new credit to establish a retirement plan.
  5. Consider options related to 529 savings as well as potential help for birth or adoption of a child.

Contact a Cincinnati Estate Planning Lawyer for Advice

If you are unsure where to begin, contact us for a free consultation with an experienced lawyer who can review your situation and advise you regarding your options. The attorneys of Godbey Law can help you develop or fine-tune a customized estate plan that will protect your family, safeguard your assets and provide important tax protections.

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Godbey Law LLC does not provide tax or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.