The SECURE Act is the most significant retirement policy legislation since the Pension Protection Act of 2006. Following is a summary of some of the changes.
The Setting Every Community Up for Retirement Enhancement (SECURE) Act was signed into law on December 20 as part of a larger budget appropriations bill. The SECURE Act is the most significant retirement policy legislation since the Pension Protection Act of 2006. Following is a summary of some of the changes.
The age at which retirement plan required minimum distributions (RMDs) must begin is increased from 70 ½ to 72. This applies to distributions required to be made after 2019 for individuals turning 70 ½ after 2019.
Individuals can now contribute to IRAs regardless of their age. Previously, contributions could not be made starting in the year the individual turned 70 ½. The new law also contains a provision impacting the amount of qualified charitable IRA distributions that can be excluded from income when a taxpayer makes deductible IRA contributions after age 70 ½.
The new law requires retirement plan distributions to be paid out in full within 10 years of the death of the employee or IRA account holder unless the benefits are left to an eligible designated beneficiary, defined as a surviving spouse; minor child; chronically ill individual; or any other individual who is not more than 10 years younger than the decedent. This provision severely curtails “stretch IRA” planning. Please note that the new law does not apply to retirement plans inherited prior to 2020.
The definition of qualified Section 529 plan distributions is expanded to include a beneficiary’s participation in an apprenticeship program and up to $10,000 (lifetime limit) of a beneficiary’s (or sibling’s) student loan principal and interest payments. This provision applies for distributions made after 2018.
The “kiddie tax” calculation rules contained in the TCJA are eliminated and the calculation methodology reverts to pre-TCJA rules. This provision is effective for tax years beginning after 2019 but a taxpayer can elect to retroactively apply the provisions to 2018 and 2019.
Up to $5,000 of distributions from a retirement plan upon the birth or adoption of a child can now be received without imposition of the early withdrawal penalty. Such withdrawals are still subject to income tax but not the penalty.
Employers are now required to allow long-term part-time employees to make salary deferrals into 401(k) plans.
The maximum annual credit for small employer pension startup costs (Section 45E) is increased from $500 to $5,000.
A new $500/year credit (for up to 3 years) is available for small employers instituting an eligible automatic contribution arrangement in a qualified retirement plan.
An employer’s retirement plan that is set up after the end of the year and before the due date (including extensions) of the entity’s tax return can now be deemed adopted as of the last day of the prior tax year. This provision is effective for plans adopted for tax years beginning after December 31, 2019.
These are just some of the many changes included in the SECURE Act. Please contact us should you have any questions.