Get to Know the SECURE Act

Bethesda Health | February 25, 2020

During December 2019, Congress passed a major piece of legislation called Setting Every Community Up for Retirement Enhancement Act of 2019 or the SECURE ACT.  In broad terms, the SECURE Act prompted these changes:

Required Minimum Distributions (RMDs) Begin At 72 Instead of 70.5

Instead of having to take RMDs from your traditional or rollover IRA account at age 70.5, you can now defer distributions until age 72. You may choose to withdraw from an IRA sooner (age 59 1/2 to avoid penalties), but you are not required to withdraw until age 72. Donors can continue to transfer their RMD to charities, like Bethesda, while avoiding capital gains and reducing their adjusted gross income. A win-win for both charity and donor!

Individuals of Any Age Can Make Contributions to their IRA

Prior to the SECURE Act, you could not make IRA contributions past age 70 1/2. You can now contribute to an IRA at any age, as long as you have earned income.

Elimination of the Stretch IRA

If you inherited a non-spousal IRA prior to 12/31/19, you (the beneficiary) were able to take RMD based upon your life expectancy. Now, under the new rules, if you inherit an Traditional or Roth IRA in 2020, the IRA has to be completely exhausted in 10 years. The following eligible beneficiaries are exempt from the 10-year rule:

  1. Spouse
  2. Disabled (as defined by IRC Section 72(m)(7)) persons
  3. Chronically ill (as defined by IRC Section 7702B(c)(2), with limited exception) persons
  4. Individuals who are not more than 10 years younger than the decedent
  5. Minor children of the original retirement account owner, but only until they reach the age of majority.

If you are already taking RMDs from an inherited IRA, you are grandfathered in the former rules, but your beneficiaries must follow new SECURE Act rules.

Use your IRA for Childbirth and Adoption Expenses

 Now, you can take up to $5,000 penalty-free from an IRA for childbirth or adoption expenses. This $5,000 max applies to each child.

Money from 529 Plans Can Now Be Used for Student Loans

Federal law now allows you to distribute up to $10,000 per beneficiary from a 529 account to pay down student loan debt. This $10,000 is a lifetime limit and is not adjusted for inflation.

Get a Tax Credit for Establishing a Retirement Plan (these next two points are relevant to small businesses)

This new incentive credit could create more 401(k) plans in small businesses all across the country by lowering the cost of administration. For tax years beginning January 1, 2020, the maximum credit available under IRC Section 45E (available up to 3 years) will be increased to the greater of: $500; or The lesser of: $250 × the number of non-highly compensated employees eligible to participate in the plan or $5,000.

Part-Time Workers Are Provided Greater 401(k) Plan Access

Employers are required to make a part-time employee eligible for the retirement plan if he or she worked 500 hours or more annually for the last three consecutive years.

Get to know the Secure Act and consult your tax advisor or CPA for how it affects you and the provisions of the ACT that will take effect in 2021. The information provided compliments of WorthNest LLC, is for educational use only. Please consult with your professional advisor with specific questions pertaining to your situation.

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