Most Significant Retirement Bill in Over a Decade Signed into Law
The Setting Every Community Up for Retirement Enhancement Act; the SECURE Act, has been in the works for a number of years. It was finally signed into law on December 20, 2019.
The SECURE Act aims to make it easier for small businesses to offer tax efficient retirement savings plans to their employees and for employees to save toward their own retirement by encouraging long-term savings and allowing savings for some current nonretirement expenses. Some of the most widely applicable features are outlined below:
- Beginning in 2020, the age for required minimum distributions from 401(k)s and IRAs has raised from 70 ½ to 72
- For IRA holders or plan participants that die after December 31, 2019, most non-spouse beneficiaries of the IRA or plan will be required to withdraw the entire balance and pay tax on the distributions within a 10-year period. There are exceptions for special needs and minor beneficiaries. Previous rules often allowed distributions to be spread over the beneficiary’s life.
- Elimination of the age cap (previously 70 ½) for contributions to an IRA, allowing those working and living longer to contribute more to their retirement (for tax years beginning after 12/31/2019)
- $5,000 from retirement plans may be withdrawn penalty free, but not tax free, to assist with costs of child birth or adoption after 12/31/2019
- $10,000 from 529 plans may be used to pay off student debt
- Safe-harbor provisions were created for employers to offer annuities as an option for investment of employee 401K balances, thus providing a guaranteed lifetime income option and potentially helping retirees not outlive their savings.
- Restrictions related to multi-employer retirement plans were eased, making it easier for small employers to band together to offer retirement plans
- Requirements changed for retirement plan eligibility for long-term part-time employees (500 hours a year for 3 continuous years) starting with plan years beginning in 2021
- Increased tax credits for starting up a new employer retirement plan including credits for plans with automatic enrollment features.
If you are a business owner and offer a retirement plan, be sure to check in with your plan advisors to make sure you are prepared to comply with the new rules.
For more details surrounding the SECURE Act and how it may affect your personal retirement situation, be sure to contact your WK advisor at (573) 442–6171 in Columbia or (573) 635-6196 in Jefferson City.