In late December 2019, Congress passed and President Trump signed into law one of the most robust retirement reform bills in over a decade, the Setting Every Community Up for Retirement Enhancement (SECURE) Act.
The primary goal of this legislation was to make saving for retirement easier for working Americans. Although much of the legislation impacts employer-sponsored plans as a whole, there are quite a few provisions that will impact individuals. Here is what you should know:
Required Minimum Distributions
Prior to the passage of the SECURE Act, individuals were required to begin taking Required Minimum Distributions (RMDs) from retirement accounts at age 70 1/2. The minimum age has now been pushed back to 72. This new limit applies to individuals who attain age 70 1/2 after December 31, 2019. If you are already age 70 1/2 and have already begun taking your RMDs, you would continue taking them as you have been.
Stretch IRAs & Non-Spousal Beneficiaries
The ability to “stretch” inherited retirement plan balances (IRA, 401k, 403b, etc.) over the lifetime of non-spousal beneficiaries is no longer permitted. Anyone inheriting a retirement account from a non-spouse individual whose date of death is after December 31, 2019 will be required to distribute all assets from the account (and pay applicable income taxes) by the end of the 10th calendar year following the year of the original account holder’s death. Reminder – this applies to non-spousal beneficiaries; an exception to this new rule will still apply to spousal beneficiaries and a few other limited situations.
Traditional IRA Contribution Age Limit
Previously, the maximum age one could contribute to a Traditional IRA was 70 1/2. This limit has been removed, and individuals can now contribute to a Traditional IRA at any age as long as they have earned income.
529 Plan Usage
With the push of trade schools and the ever-growing student loan debt crisis, the SECURE Act has expanded its definition of allowable expenses for 529 college savings plans to include certain qualified apprenticeship programs as well as up to $10,000 of student loan repayments.
Family Planning
Individuals may now withdraw up to $5,000 from retirement plan accounts in order to cover qualified expenses for birth or adoption. These withdrawals are penalty-free and must be taken within one year of the birth or adoption. Normal income taxes do still apply to the distribution, but if they desire, parents can repay the distribution within three years.
