SECURE Act 2019 – What Does It Mean to the Individual Investor?

President Trump signed the SECURE Act into law on December 20, 2019 as part of the 2020 appropriations bill. The Act is the most significant reform to our Nation’s retirement system in over a decade. While there are 30 different provisions, we would like to highlight a select few of particular interest or importance. Please note the effective date of these provisions was January 1, 2020.

Change of the official Required Minimum Distribution (RMD) Age: The required age of RMDs has been postponed from the year one turns age 70 ½ to the year one turns age 72. This applies to individuals who turn 70 ½ after December 31, 2019.

Elimination of the Stretch IRA: Prior to January 1, 2020, the law allowed a designated beneficiary to “stretch” distributions from a retirement account over the beneficiary’s remaining life expectancy. The SECURE Act places a cap of 10 years for a designated beneficiary and 5 years for a non-designated beneficiary on the time permitted to fully withdraw plan or IRA asset balances. There is an exception for a surviving spouse and a few other types of beneficiaries. This may be a game changer for many people’s estate plans and tax liability of beneficiaries. If you are concerned about the distribution changes or the tax burden of the Act, contact our office to discuss strategies to minimize the effects of the Act.

Repeal of maximum age for traditional IRA contributions: Employees are now allowed to continue making traditional IRA contributions past age 70 ½ for tax years 2020 and after.

Child Birth or Adoption Distributions: Retirement plans may allow for penalty-free distributions for expenses related to the birth or adoption of a child. In addition, these special distributions can later be repaid to a qualified retirement plan. Please note this feature is not required to be offered.

Ability for certain part-time workers to participate in retirement savings plans: Under existing law, qualified retirement plans may exclude part-time employees from participation if the employees do not complete 1.000 hours of service in a year. The ACT now requires 401(k) plans to extend participation – solely for purposes of making elective deferrals – to any part-time employee who has worked at least 500 hours in each of the preceding 3 consecutive 12-month periods.

Should you have questions on any of the new provisions of the SECURE Act and potential impact to you, please contact our office to discuss its impact and strategies to consider putting into place.

While there are 30 different provisions, we would like to highlight a select few of particular interest or importance.

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