The Secure Act of 2019

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​The Secure Act (Setting Every Community Up for Retirement Enhancement) is the broadest piece of retirement legislation passed in 13 years, in an effort to address the alarming fact that 25% of Americans have no retirement savings at all.  It may appear at first glance that many of the provisions may not have a direct effect on your situation.  However, there can be tax, estate planning and income planning considerations.
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The Secure Act (Setting Every Community Up for Retirement Enhancement) is the broadest piece of retirement legislation passed in 13 years, in an effort to address the alarming fact that 25% of Americans have no retirement savings at all.  It may appear at first glance that many of the provisions may not have a direct effect on your situation.  However, there can be tax, estate planning and income planning considerations.  

One key change in the new bill is paying for all of this: the removal of a provision known as the stretch IRA, has allowed non-spouses inheriting retirement accounts to stretch out disbursements over their lifetimes. 

The new rules will require a full payout from the inherited IRA within 10 years of the date of death of the original account holder, raising an estimated $15.7 billion in additional tax revenue. (This will apply only to heirs of account holders who die starting in 2020.)  Surviving spouses, minor children, and those not more than 10 years younger than the deceased, are generally exempt from the 10 year payout.

​We advise all our clients to review their IRA beneficiary designations, as well as review their estate plans, to discover any unintended consequences from prior estate planning.  We will also include this topic in our first quarter conversations with clients.  As always, we are happy to receive your questions.

For Individuals

• Elimination of the “stretch” provisions for beneficiaries of IRAs and defined contribution plans, like 401(k)s.  Surviving spouses, minor children, and those not more than 10 years younger than the deceased, however, are generally exempt from this new SECURE Act 10-year distribution rule.
• In the past, if a traditional IRA was left to a beneficiary, that person could, in most cases, stretch out the RMDs over his or her own life expectancy, essentially “stretching” out the tax benefits of the retirement account. But with the new law, starting on Jan. 1, 2020, most IRA beneficiaries will now have to distribute their entire inherited retirement account within 10 years from the year of death of the owner.
• Pushes back the age at which retirement plan participants need to take required minimum distributions (RMDs) from 70½ to 72, for those who are not 70½ by the end of 2019.
• Allows the use of tax-advantaged 529 accounts for qualified student loan repayments (up to $10,000 annually).
• Permits penalty-free withdrawals of $5,000 from 401(k) accounts to defray the costs of having or adopting a child.
• Permits contributions into a tax-deductible IRA after the age of 70½.

For businesses:

• Makes it easier for small businesses to set up 401(k)s by increasing the cap under which they can automatically enroll workers in “safe harbor” retirement plans, from 10% of wages to 15%.
• Provides a maximum tax credit of $500 per year to employers who create a 401(k) or SIMPLE IRA plan with automatic enrollment.
• Enables businesses to sign up part-time employees who work either 1,000 hours throughout the year or have three consecutive years with 500 hours of service.
• Encourages plan sponsors to include annuities as an option in workplace plans by reducing their liability if the insurer cannot meet its financial obligations.
• Encourages employers to include more annuities in 401(k) plans by removing their risk of legal liability if the annuity provider fails to deliver the promised income stream, and also not requiring the employer to choose the lowest-cost plan.