In December of 2019, the U.S. Senate approved, and the President signed into law, the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act), which was passed by the House of Representatives in July. The SECURE Act became effective January 1, 2020.
The new law represents significant changes to the rules governing retirement plans, including IRAs and 401(k) plans. Below are several key provisions of the SECURE Act:
• 401(k) Safe Harbor Rules: The SECURE Act has made changes developed to offer greater flexibility, strengthen employee protections, and promote the adoption by businesses of 401(k) plans. The Safe Harbor Notice requirement is eliminated, but employers must still allow employees to make or change investment elections at least once annually.
• IRA Contributions: Prior to the new legislation, taxpayers were barred from contributing to an IRA after reaching the age of 70½. The SECURE Act repeals this restriction (based upon the age of the participant).
• Required Minimum Distributions: Previously long-standing rules required participants in IRAs and other qualified plans to begin taking required minimum distributions (RMDs) in the year following their turning 70½. Under the SECURE Act, the age at which RMDs must be taken is extended to 72, since participants have longer life expectancies than they had when the previous rules were promulgated.
• Early Withdrawals: Tax law had already provided for the exemption of certain early withdrawals from qualified plans and IRAs from the general 10% tax penalty. The new legislation adds additional exemptions to the list, including qualified birth or adoption expenses.
• Stretch IRAs: This provision will likely have an adverse impact on a great number of taxpayers. Previously, a non-spouse beneficiary of an IRA was permitted to extend RMDs over their lifetimes. Under the SECURE Act, non-spousal beneficiaries of all inherited IRAs and qualified plans must take full distribution of these accounts within ten years following the death of the account owner. There are some exceptions – if the beneficiary is a minor, disabled, chronically ill, or no more than ten years younger than the deceased account owner.
These are only a few of the provisions of the SECURE Act; many other significant changes to existing law are incorporated into the new legislation.
If you would like to know more about the SECURE Act, and how it might affect your own financial picture, please click here to email me directly – I am here to help, and more than happy to do so.
Until next Wednesday – have a great week!