Understanding the SECURE Act

In late December 2019, the U.S government spending bill was signed and it includes a provision which impacts retirement plans. This new provision is referred to as the Setting Every Community Up for Retirement Enhancement (SECURE) Act. The SECURE Act is designed to enhance and increase access to retirement savings plans and its effective date is January 1, 2020.

Below is a summary of how the SECURE Act will impact existing retirement plans:

The Age for the Required Minimum Distribution (RMD) Has Been Increased to 72

This change only applies to individuals who turn age 70 ½ after December 31, 2019.

  • If an individual turns age 70 ½ on or after January 1, 2020, the RMD is now age 72.
  • If an individual turned age 70 ½ in 2019, he must take his RMD for 2019 by April 1, 2020 and each year thereafter.

An Individual is Permitted to Contribute to a Traditional IRA after the Age of 70 ½

Provided an individual has earned income, he’s able to contribute to a Traditional IRA regardless of his age.

Penalty Free Withdrawals are Permitted for Birth or Adoption

An individual is now able to withdraw up to $5,000 without penalty from an IRA or employer-sponsored retirement plan for expenses associated with the birth or adoption of a child.

  • The individual is still required to pay tax on the amount withdrawn that was based on pre-tax contributions.

Changes Have Been Made to the Rules on Inherited IRAs (also referred to as Stretch IRAs)

Under the previous law, an individual (beneficiary) who inherits an IRA from the original owner was permitted to receive distributions from the account over her lifetime. However, under the new law, these distributions must be made within 10 years. Therefore, the beneficiary must withdraw all of the funds within that 10-year period.

  • This change doesn’t impact an individual who inherited an IRA prior to January 1, 2020.
  • Additionally, certain individuals who inherit IRAs after January 1, 2020 will not be impacted by the 10-year distribution rule. These individuals include the surviving spouse, a minor child, a disabled or chronically ill person, and any beneficiary who’s less than 10 years younger than the person who passed away.

Changes Have Been Made to 529 College Savings Plans

An individual is now permitted to withdraw up to $10,000 on a tax-free basis (a qualified withdrawal) to repay a qualified student loan as well as expenses for certain apprenticeship programs. This is a lifetime limit that applies to the beneficiary and each of the beneficiary’s siblings. The law made the effective date retroactive to distributions that are made after December 31, 2018.

Changes Have Been Made to 401(k) Plans for Part-Time Employees

Employees who worked at least 500 hours per year for three consecutive years are now eligible for a company’s 401(k) plan.

This will now require employers that maintain 401(k) plans to have a dual eligibility requirement under which employees must be eligible if they either:

  1. Complete a one-year of service requirement (with the existing 1,000-hour requirement) or
  2. Three consecutive years of service during which the employees complete at least
    500 hours of service


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