The SECURE ACT

The SECURE ACT

provided by Bryan A. Ruder, CFP^®, MS, CRPC^®, AWMA^®, AAMS^®, AIF^®, MPAS^® 

One of the most significant pieces of retirement legislation became effective 

January 1, 2020, with the Setting Every Community Up for Retirement Enhancements (SECURE) Act. It contains 29 separate provisions that encourage workplace retirement adoption and increases saving opportunities for Americans.  Below is a summary of some of the more substantial changes that may impact your retirement, tax, and estate planning strategies.

Requirement Minimum Distributions (RMDs) have increased from 70 ½ to 72.  Individuals born on or after July 1, 1949,  can wait until age 72 to take required minimum distributions (RMDs) from traditional IRAs and employer-sponsored retirement plans instead of starting them at age 70 ½ as required under previous law.  This can be beneficial for individuals who don’t need the withdrawals for living expenses because it delays payment of income taxes and gives the retirement account a long time to grow. If you are still working, participants may be able to delay taking withdrawals from their current employer’s plan as under previous law.

Traditional IRA contributions have no age limit.  Beginning in 2020, traditional IRA contributions are allowed at any age, as long as the account owner (or spouse if married filing jointly) has earned income.  Keep in mind that contributions to a traditional IRA only defer taxes.  Withdrawals, including any earnings, are taxed as ordinary income from a traditional IRA unless it is a Qualified Charitable Distribution (QCDs).  

529 Plans Eligible Expenses Expanded.  529 Plan funds now may be distributed tax-free to pay for registered apprenticeship programs.   In 2020 and beyond, 529 Plan funds may also be used to pay down student loans (subject to a lifetime limit of $10,000).

Inherited IRA/retirement accounts, a new 10-year rule will apply.  If an IRA owner/plan participant dies in 2020 or after, the new rule requires the IRA/retirement account to be depleted within 10 years (by December 31 of the 10^th anniversary of death).  There are several exceptions including spouses, minors, disabled or chronically ill individuals and non-souse beneficiaries that are no more than 10 years younger than the deceased.  Once a minor reaches the age of majority, the 10-year rule begins.

Since the stretch IRA is eliminated with the SECURE Act, the tax obligation from withdrawals may increase significantly to non-spouse beneficiaries.

Tax Credit for New Retirement Plans, SEP IRAs, and Simple IRAs.  The SECURE Act includes provisions that make it simpler and more affordable for small businesses to offer retirement plans.  The tax credit up to $5,000 may be an incentive for small businesses to establish their first retirement plans for employees.    

If you have questions about the SECURE Act and how it can impact your financial plan, reach out to your professional financial, legal, and/or tax advisors.

This information is for educational purposes only.   Stifel and its employees do not provide legal or tax advice.  You should consult with your legal and tax advisors regarding your particular situation.

 FOOTNOTE: FOOTNOTE: Article provided by Bryan A. Ruder, CFP^®, MS, CRPC^®, AWMA^®, AAMS^®, AIF^®, MPAS^®, Associate Vice President/Investments, Stifel, Nicolaus & Company, Incorporated, Member SIPC, and New York Stock Exchange, who can be contacted in the Evansville office at (812) 475-9353 or ruderb@stifel.com