How the Recently Enacted Secure Act Could Change Your Retirement Plans

The SECURE Act was signed into law on December 20, 2019, and represents the most significant change to the retirement regulations in nearly 15 years. The Act, which is formally titled “The Setting Every Community Up for Retirement Enhancement Act of 2019,” introduced over 30 new provisions affecting the retirement system.  Key changes everyone should be aware of include:

• The SECURE Act now allows for each parent that adopted or gave birth to a child to withdraw $5,000 from their retirement account within one year of the birth or adoption. This allowance means that the 10% early withdrawal penalty will not apply, and there is no mandatory tax withholding.
• If you are retired and turned 70 after June 30, 2019, you can delay taking your minimum required distribution till you turn 72. These additional two years allow your retirement accounts to enjoy higher earning capacity.
• Beginning in 2021, part-time employees that have worked at least 500 hours per year for three consecutive years now have access to their company’s retirement plans. This change does not apply to collectively bargained plans, but if you are a part-time employee that desires to take advantage of your employer’s retirement plan, this change will allow you to do that.
• There is no longer a limit impacting your ability to contribute earned income to your IRA. Under the old rule, individuals over 70.5 years old were prohibited from making non-rollover contributions to their IRA.
• If you have a 529 tuition account, the SECURE Act allows you to repay up to $10,000 in outstanding qualified education loans. This benefit applies to both the beneficiaries of a 529 plan and their siblings.
• The SECURE Act also will allow retirement options for small businesses. Starting in 2021, unrelated employers will be allowed to join a “pooled employer plan” that has the benefits, costs, and offerings of a much larger plan.
• Notably, the SECURE Act now mandates payout of many retirement plans in about 10 years after the plan owner dies. So, if the beneficiary of the plan is an individual, then the entire plan balance will have to be paid out by the 10th anniversary of the plan holder’s death. Previously, many taxpayers relied on the assumption that the valuable income tax deferral and tax free growth inside the plan would dissuade an otherwise imprudent beneficiary from taking the plan balance faster then the long-term or “stretched” payout period, even if no trust were used. But with the loss of that motivating tax benefit in after 10-years, that may no longer be the case.

If you have questions or concerns with an estate planning issue of your own, please call our estate planning attorneys at (402) 827-7000.