News & Insights

On December 20, 2019, President Donald Trump signed into a law a retirement savings bill known as the SECURE Act. “Setting Every Community Up for Retirement Enhancement”, the bill was included as part of a massive government spending bill approved by Congress to avert another government shutdown. In it are significant changes to retirement savings law that will affect individuals in or nearing retirement, small business owners, and new parents. Certain estate planning techniques will also be affected by the changes.

Key provisions in the retirement savings portion of the bill include:

Change to RMD age: The law raises to 72 from 70½ the age at which individuals must begin taking RMDs from their retirement accounts. The new law only applies to people who turn 70½ after December 31, 2019. If a person turned 70½ in 2019, the law does not apply—that person must take an RMD in 2019, 2020, and beyond.

Contributions to traditional IRAs after age 70½: The law ends the prohibition on contributing to an individual retirement account (IRA) after 70½. Individuals may continue contributing to an IRA at any age, as long as they have earned income.

Limitations for inherited retirement accounts: Under current law, inherited retirement accounts (often referred to as “Stretch IRAs”) can distribute those assets over the beneficiary’s lifetime. The ability to stretch the retirement plan distributions allows undistributed amounts inside the retirement accounts to continue to grow on a tax-deferred basis until distributed. Under the new law, those assets must be distributed within 10 years. The Stretch IRA strategy is greatly diminished under the Act as retirement accounts must distribute the entire IRA within 10 years of the owner’s death. The distributions can take place at any time, but must be completed by the end of the 10th year following the account owner’s death. This presents planning opportunities for the beneficiary to maximize the after tax distributions from the IRA. There are exceptions for spouses, minor children, disabled individuals and people less than 10 years younger than the decedent. The bill does not affect existing inherited accounts. It only applies to accounts inherited after December 31, 2019.

Penalty-free withdrawals for birth/adoption expenses: New parents can withdraw up to $5,000 from an IRA or an employer-sponsored retirement plan to pay for birth and/or adoption expenses, through the first year after the birth or adoption. Taxes still need to be paid on pre-tax contributions, but no penalties apply to the withdrawal.

Part-time workers can participate in a 401(k) plan: Employees must have worked at least 500 hours a year for three consecutive years in order to be eligible.

Change to 529 plans: Assets in these college-savings plans can now be used to repay up to $10,000 in student loans.

Provisions to help small businesses: Several provisions in the bill are designed to make it easier and less expensive for small businesses to offer retirement plans to their employees, including a provision that will allow unrelated small businesses to band together in so-called “multiple employers plans” to offer a plan to employees.

Not sure how you are affected?

Talk to us about how to optimize your withdrawal strategy from your retirement accounts to make sure you are taking advantage of the new rules. Planning opportunities exist for investors whose estate plans include transferring retirement assets to their heirs as well as to charities. Utilizing ROTH IRAs may be appropriate. Take care to review plans to determine if any adjustments to IRA beneficiaries need to be made. Please do not hesitate to reach out with questions!