At the end of 2019, Congress passed the SECURE Act, and the President signed it in to law on December 20th. Most provisions of the SECURE Act go into effect as of January 1, 2020 but some in 2021 or later. Generally, the intent of the SECURE Act is to make saving for retirement easier for Americans. The full name of the Act is ‘Setting Up Every Community for Retirement Enhancement Act’.
From a high level, here are some provisions of the new SECURE Act that may affect you, as an individual:
There’s no longer an age restriction for contributions to traditional IRAs. You may continue to make contributions to your traditional IRA beyond age 70 1/2. There remains no restriction on contributions to ROTH IRAs.
The age at which you must take ‘required minimum distributions’ (RMDs) is now age 72, up from 70 1/2.
The ‘Stretch IRA’ rules remain the same for spouses. Under the SECURE Act, if you name your spouse as your beneficiary for your traditional IRA, 401K, or similar ‘qualified plan’, he or she has the option to stretch payments by way of rollover or electing to make the account his or her own. These options provide flexibility as far as timing and preferred tax treatment.
Non-spouse beneficiaries, however, are impacted by the new law. Non-spouse beneficiaries will be required to withdraw and pay taxes on the full amount in the inherited retirement account within 10 years. So, the lifetime ‘stretch’ and the resulting benefits are no longer available.
There are some exceptions, and these are the surviving spouse (as noted), a minor child, a beneficiary who is 10 years or less younger than the deceased account owner, and a chronically-ill individual who is named as a beneficiary.
The SECURE Act also affects businesses, and the Act includes provisions to make it easier for an employer to establish plans for their employees. Businesses can more easily participate in ‘multiple employer plans’. There are tax credits available to businesses for start up costs and for plans with automatic employee enrollment. The qualification rules have been changed to allow more part-time employees to enroll in their employer’s retirement savings plan.
For individuals, the SECURE Act impacts estate planning, and, specifically, who to name as a beneficiary for your traditional IRA, ROTH IRA, 401K, or similar ‘qualified plan’. Ultimately, it’s important to understand the effect of the change in the laws on your estate planning, so that you structure your estate plan to meet your goals.
Because of the intersection of legal issues, financial considerations, and taxes, it’s very important to work with your financial advisor, accountant, and estate planning attorney to address these issues.
Any requests for topic suggestions may be sent to email@example.com. Although we cannot give you legal advice through the column, we can provide some general information that may be helpful for you to know. Our purpose is to educate and we hope that you can take something new away from this column each time you read it.