The New SECURE Act Goes Live
As we alluded to in our October 2019 post, the SECURE Act has been passed into law as of January 1st, 2020. The Act makes some significant changes to required minimum distribution (RMD) rules as well as a number of changes to Individual Retirement Accounts (IRAs), qualified retirement plans, and a number of other areas.
We’ve compiled a list of the “Good” and “Not so Good” changes for better understanding below:
- You can delay RMDs until age 72. If you became age 70½ on or after January 1, you can delay taking requirement minimum distributions (RMDs) until April 1 of the year you reach 72. An additional delay of one year may also be possible, with further restrictions.
- Exception to 10% early distribution penalty. Now up to $5,000 can be distributed penalty-free for a qualified birth or adoption; the distribution must occur during a one-year period beginning on either the date of birth or the finalization of adoption of a child under 18
- 529 Plan funds for K-12 expenses. Allowable expenses are further expanded to include apprenticeship programs for fees, books, supplies and required equipment. The program must be registered with the Department of Labor to be eligible.
- 529 Plan funds for Student Loans: 529 plans can now be used to pay for student loan debt for the plan beneficiary or sibling of the beneficiary without taxes or penalty. There is a $10,000 lifetime limit for all 529 plans which can be used towards an individuals’ student loans.
- Contributions to IRAs after age 70½. Contributions can be continued so long as the individual receives compensation from either wages or self-employment income.
- Multiple Employer Plans (MEPs) and Tax Credits for Small Business Owners: In order to offer competitive and cost effective retirement plans for small businesses, the SECURE Act introduced Multiple Employer Plans or MEPs as a new way for multiple small businesses to pool their resources together to offer a more attractive retirement pan to their employees with larger scale. Additionally, the small business tax credit for starting new retirement plans increased from $500 / year to $5,000 / year (or $15,000 over the 3 allowable years).
The Not so Good:
- New 10-year “stretch” window for inherited retirement accounts. Previously, the window was for the remaining “on paper” life expectancy of the first beneficiary. Under the new rules, a maximum 10-year stretch window applies, but with various exceptions. This means that unless an exception applies, the entire retirement account must be distributed by the end of the tenth year following the retirement account owner’s death. In such case, no annual distributions are required prior to the end the 10-year period.
- Increase Annuity Options Inside Retirement Plans. While not inherently a bad change; the SECURE Act eased some of the liability concerns with safe harbor provision inside of 401(k) plans and picking the “best” annuity provider for the plan. The change may increase the opportunity for annuities to be sold inside of qualified retirement plans and a larger scale. We would recommend consulting with your financial professional to see if an annuity in your retirement plan is right for you.
As you can see, there are many new changes that can affect your overall financial plan. At Sterling Retirement Resources, we would be happy to answer any questions on the SECURE Act or discuss how these new provisions may change your specific financial situation.
For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Neither Cetera Advisor Networks LLC nor any of its representatives may give legal or tax advice.