On December 20, 2019, the Setting Every Community Up For Retirement Act (SECURE Act) was signed into law. This is one of the most significant pieces of retirement legislation created in quite some time. In an effort to improve a troubled retirement system, the SECURE Act attempts to increase access to tax-advantaged retirement accounts while preventing older Americans from outliving their assets.
Though the provisions of the law and what they cover can be quite complex and lengthy, we have summarized some key items below:
• Required Minimum Distribution (RMD) Age Increased - The age at which individuals must begin taking distributions from certain retirement plans and traditional IRAs has been increased from age 70 ½ to 72 for individuals who turn 70 ½ in the calendar year 2020.
• Post 70 ½ IRA Contributions - The limit prohibiting individuals who have attained age 70 ½ from making contributions to traditional IRAs has been repealed.
• Non-Spouse “Stretch” IRAs - With some notable exceptions, in general all funds from an inherited IRA must now be distributed to non-spouse beneficiaries within 10 years of the IRA owner’s death.
• Penalty-Free Withdrawals for Birth or Adoption of Child - Individuals can withdraw up to $5,000 following the birth or adoption of a child from retirement accounts without the normal 10% early withdrawal penalty.
• New Tax Credit for Small Employer Plans with Automatic Enrollment - Small employers will be eligible to receive a new tax credit to offset the costs of starting certain retirement plans with auto-enrollment in addition to the start-up credit they already receive. The cap on the existing start-up tax credit has also been increased.
• Qualified Automatic Contribution Arrangements (QACA) - The automatic contribution rate permitted to be set by employers has been increased from 10% to 15% of compensation.
• 401(k) Plan Eligibility for Part-Time Employees - Employees who have worked at least 500 hours per year for the last three consecutive years are guaranteed plan eligibility (down from the previous requirement of 1,000 hours).
• Annuities in 401(k) Plans - The fiduciary responsibility to ensure that these products are appropriate for employees’ portfolios has shifted from the employer to the insurance companies.
• 529 Funds Can Be Used to Pay Down Student Loan Debt – Allows parents to withdraw up to $10,000 from 529 plans to repay student loans.
Please remember that these are only brief summaries and intended to provide you with a general overview of key items included in the law. Certain exceptions and/or exclusions may apply to these descriptions. As we have not provided summaries of all provisions of this legislation, we certainly encourage you to explore any topics pertaining to your situation that may not be included further.
Should you have additional questions regarding the information above, please contact us!
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