Secure Act

WHAT THE SECURE ACT MEANS TO YOU

The SECURE Act was part of a spending bill passed by Congress and signed into law by President Trump on Dec. 20, 2019. Its purpose is to encourage people to save for retirement and to make it more affordable for business owners to offer retirement plans to their employees.

Whether you’re already retired, planning to retire soon, or just beginning your savings journey, you should be aware of key provisions in this new law.

RETIREMENT AND ESTATE PLANNING CONSIDERATIONS FOR INDIVIDUALS

RMD Age Increased. Were you born on or after July 1, 1949?
If so, you don’t have to start taking your Required Minimum Distribution from IRAs and qualified retirement plans until April 1 of the year after you turn age 72.

What to do: It depends on your birthdate – if you were born before July 1, 1949, prior rules apply. If you were born on or after that date, talk to your Advisor about how this change could affect your retirement saving and withdrawal strategies.


“Stretch” IRA Eliminated
Beneficiaries who inherit an IRA or qualified retirement account in a defined contribution plan, a 403(b) plan or a governmental 457(b) plan will now have to withdraw the money within 10 years, with certain exceptions, such as for spouses, minors and disabled beneficiaries. This change only applies to beneficiaries of account owners who die after Dec. 31, 2019. 

What to do: Talk to your tax or estate attorney about tax strategies if you have listed someone other than your spouse as a beneficiary on an IRA or qualified retirement account, or if you are listed as the beneficiary on an IRA or retirement plan account owned by someone other than your spouse.


Age Cap Eliminated for IRA Contributions
You (or your spouse) can now contribute to an IRA beyond age 70½ as long as the account owner or spouse has earned income.

What to do: If you or your spouse anticipate having earned income at or beyond age 70½, visit with your Advisor about the benefits of continuing your IRA contributions.

OTHER CONSIDERATIONS FOR INDIVIDUALS

Kiddie Tax Reverts to Parents’ Tax Rates
The so-called “kiddie tax” is a tax on a child’s unearned income such as interest, dividends and capital gains. A 2017 law change required this unearned income to be taxed at the often higher rates of estates and trusts. The SECURE Act includes a provision that reverts back to the prior method, which calculates taxes based on the parents’ tax rates.

What to do: Make sure your tax preparer is aware if this situation applies to you.


No Penalty for Retirement Account Distributions for Births and Adoptions
New parents may be able to withdraw up to $5,000 from IRAs or certain qualified plans for birth or adoption expenses without the typical penalty for early retirement account withdrawals.

What to do: Because this isn’t a mandatory provision, first check with your employer to determine if this will be available under their plan. Remember that retirement account distributions are still considered taxable income. Be sure to consider the potential long-term cost of foregone earnings when you make a retirement account withdrawal.


529 Plan Funds Can Be Used to Repay Qualified Student Loans
Distributions for this purpose are limited to a per-person lifetime amount of $10,000. Another $10,000 for each sibling of the 529 plan beneficiary also may be used for qualified student loan repayment.

What to do: Be sure to discuss not only federal but also state tax provisions for your specific 529 plan with your tax preparer, and remember that any student loan interest paid with a distribution from a 529 plan cannot be deducted on your tax return.

CONSIDERATIONS FOR BUSINESS OWNERS

Tax Credits for Retirement Plan Startup Costs
If your company has 100 or fewer employees, you may receive an income tax credit of up to $5,000 for three years for eligible start-up costs of adopting a new employee retirement plan. An additional tax credit of $500 a year for three years is available if you add an “auto-enrollment” provision to an existing plan, or if you include it in a new plan. These provisions are effective for taxable years beginning after 2019.

What to do: If your company has 100 or fewer employees and you don’t have a company-sponsored retirement plan, or you have a plan but it doesn’t have an auto-enrollment provision, visit with your tax preparer about the advantages of this new provision.


More Time to Adopt a Retirement Plan for Your Company and Still Receive Tax Benefits
You now have until the due date of your tax return (including extensions) to set up certain types of qualified retirement plans. Previously, these plans had to be adopted by the end of the employer’s taxable year.

What to do: If your company doesn’t yet have a retirement plan, talk to your tax preparer about the advantages of moving ahead with setting one up before your 2020 tax return is due.  It should be noted that the delayed adoption date may not be used to make retroactive elective deferral contributions.
 


This is a summary of some but not all of the provisions of the SECURE Act. Learn more about these and other SECURE ACT changes. You can also download our SECURE ACT Q&A document.

Need help navigating the impact of these changes? Contact your advisor today.SECURE Act Provisions

SECURE Act Provisions

SECURE Act Q&A


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