The 2019 SECURE ActSubmitted by Asset Advisory Group on January 7th, 2020
The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019, which passed the House in a sweeping 417-3 vote, was incorporated into an end-of-year spending bill and was signed by the President on December 20, 2019.
Below are some key provisions of the Act:
· Individual investors will be able to continue to contribute to traditional IRAs after age 70 ½.
· Retirees won’t have to take required minimum distributions until age 72. The current threshold is 70 ½.
· The stretch IRA is going away. Beneficiaries of an IRA will have to draw down the account and pay taxes on their withdrawals over 10 years instead of over their lifetimes. In the past, inheritors of IRAs could take distributions over the course of their lifetimes, minimizing the tax hit in any one year and planning larger withdrawals in retirement when they wouldn’t receive employment income. There are exceptions to the new drain-in-10 rule. Surviving spouses can still withdraw just the required minimum over their life expectancy, as can minor children and people with disabilities. A child would only become subject to the 10-year rule once they reached majority age. The new rule takes effect on January 1, 2020, which means that current beneficiaries already taking required minimum distributions from inherited accounts will not be affected.
· All the use of tax-advantaged 529 accounts for qualified student loan repayments (up to $10,000 annually).
· Permit penalty-free withdrawals of $5,000 from 401k accounts to defray the costs of having or adopting a child.
· Provisions could encourage employers to include annuities in their retirement plans.
· Provisions will make it easier for small business owners to set up “safe harbor” retirement plans that are less expensive and easier to administer.
Given these new laws, we recommend you review beneficiaries on all qualified accounts (401ks, 403bs, IRAs, Defined Benefit plans, etc). For situations where you may have a Trust as the beneficiary, we recommend reviewing with your estate attorney to review and to confirm that it is compliant with the new Inherited IRA distribution rules and that it still meets your estate planning needs.