The SECURE Act: What You Should Know

Highlights of SECURE Act

The President recently signed the “Setting Every Community Up for the Retirement Enhancement Act of 2019” also known as the SECURE Act of 2019.  The SECURE Act is a retirement reform that is aiming to improve the nation’s retirement system, which has not been changed in nearly a decade. 

The following is a list of the biggest changes for individuals and businesses:

Allows annuities to be offered in 401(k) plans by creating a safe harbor that provides for satisfaction of the ERISA prudence requirement in selecting annuity providers.

Increases the required minimum distribution age for retirement accounts to 72 since Americans are working later in life and living longer, the current age is 70 ½.

A taxpayer working after age 70 ½ can make deductible contributions to a Traditional IRA even as that taxpayer takes required minimum distributions.

Eliminates the stretch planning provision where a beneficiary was able to stretch distributions over their life expectancy. Those beneficiaries that inherit in 2020, will fall under the “10-Year Rule.” Under this, the account balance from a qualified plan or IRA must be distributed to a designated beneficiary within 10 years.  The “10-Year Rule” does not apply to spousal beneficiaries, disabled or chronically ill individuals and individuals who are not more than ten years younger than the participant.  If the beneficiary is a minor child of the plan participant, the ten-year payout begins upon that minor child reaching the age of majority.

Starting in 2020, parents can withdraw up to $5,000 from retirement accounts penalty-free within a year of birth or adoption for qualified expenses.

Expands the 529 education savings accounts to cover costs associated with qualified schooling and up to $10,000 to cover qualified student loan repayments for the 529 plan beneficiary and that beneficiary’s sibling(s).

Repeals the changes to the “kiddie tax” that was in the Tax Cuts and Jobs Act of 2017. In 2018, “kiddie tax” was based on high tax rates for estates and trusts. Now, a child’s unearned income above the threshold amount ($2,200 in 2019 & 2020) will be taxed at the parent’s rate.

The threshold for the itemized medical expense deduction is reduced to 7.5% of adjusted gross income.

Businesses will receive a tax credit to offset startup costs to add plans that include automatic enrollment in a 401(k) plan or SIMPLE IRA plan.

Employers are required to allow long-term part time workers that have worked at least 1,000 hours in one year or three consecutive years of at least 500 hours to participate in the 401(k) plan.

With the SECURE Act the goal is that more Americans will have the access to save to 401(k) plans, improving their retirement savings and allowing different options for Americans to save for their future.