February 10, 2020

***If your Estate Plan contains significant Retirement Assets and you have a trust in place Please call 513-351-1525 so I can review your plan to see what changes may be necessary.

THE SECURE ACT effective as of January 1, 2020. 

The SECURE Act Highlights:

v Repeals the maximum age for traditional IRA contributions, which is currently 70½.

v Increases the required minimum distribution (RMD) age for retirement accounts to 72 (up from 70½).

v Allows long-term, part-time workers to participate in 401(k) plans.

v Offers more options for lifetime income strategies.

v Permits parents to withdraw up to $5,000 from retirement accounts penalty-free within a year of birth or adoption for qualified expenses.

v Allows parents to withdraw up to $10,000 from 529 plans to repay student loans.

v As part of a larger government spending package, which was signed into law on December 20, 2019, Congress included provisions from the Setting Every Community Up for Retirement Enhancement (SECURE) Act. The act includes many common-sense, long-overdue reforms that could make saving for retirement easier and more accessible for many Americans.

Here's a summary of key provisions of the SECURE Act:

Required minimum distributions (RMDs) now begin at age 72

Americans will no longer be required to withdraw assets from IRAs and 401(k)s at age 70½.

Instead, RMDs now begin at age 72 for individuals who turn 70½ in the calendar year 2020 (If you turned age 70½ in 2019 and have already begun taking your RMDs, you should generally continue to take your RMDs). 

You can make IRA contributions beyond age 70½

You can continue to contribute to your traditional IRA as long as you are still working.

Long-term, part-time workers will be able to join their company's 401(k) plan

Generally speaking, if you worked less than 1,000 hours per year, you were generally ineligible to participate in your company's 401(k) plan.  The new law requires employers with a 401(k) plan to offer it to any employee who worked more than 1,000 hours in one year, or 500 hours over 3 consecutive years.

Inherited IRA distributions generally must now be taken within 10 years

The Secure Act went into effect Jan. 1, 2020 and effectively eliminated the “inherited stretch IRA,” which allowed non-spousal beneficiaries to withdraw assets of inherited accounts over their life expectancies in a so called “Inherited IRA”.  Going forward the beneficiaries of Inherited IRAs will have to withdraw ALL the assets from a “so called” inherited IRA or 401(k) plan within 10 years following the death of the account holder (a surviving spouse, a minor child, a disabled or chronically ill beneficiary and any beneficiary who is less than 10 years younger than the original owner are exempt from this rule).

You can withdraw up to $5,000 per parent penalty-free from your retirement plan upon the birth or adoption of a child

The new law permits an individual to take a "qualified birth or adoption distribution" of up to $5,000 from an applicable defined contribution plan, such as a 401(k) or an IRA without the 10% early withdrawal penalty.  The new rule allows each parent to use the $5,000 exemption, which means a couple could take up to $10,000 out penalty-free if they each had separate retirement accounts. While new parents can opt to repay the withdrawal amount, this is not a loan and does not need to adhere to the strict 401(k) repayment process.

529 funds can now be used to pay down student loan debt, up to $10,000

529 plan account owners may now withdraw up to $10,000 tax-free for payments toward qualified education loans.  The $10,000 limit is a lifetime limit that applies to the 529 plan beneficiary and each of their siblings. For example, a parent with four children may take a $10,000 distribution to pay student loans for each child, for a total of $40,000.