Overview of the SECURE Act

On December 19, 2019, the Senate passed the "Setting Every Community Up for Retirement Enhancement" Act (SECURE Act) as part of the Further Consolidated Appropriations Act, 2020 (H.R. 1865), which was signed into law by the President on December 20, 2019.  The SECURE Act significantly modifies many requirements for employer-provided retirement plans, individual retirement accounts (IRAs), and other tax-favored savings accounts.  The SECURE Act expands opportunities for individuals to increase their savings, and makes administrative simplifications to the retirement system.

The Act includes provisions affecting individuals, employer plans, plan administration, and penalties.  We wanted to point out a few of the highlights of the Act that may be applicable and/or relevant for your tax planning:

1. Repeal of the maximum age for traditional IRA contributions - after 2019.

Under pre-Act law, you could not make a traditional IRA contribution for a calendar year in which you've reached age 70 1/2 by the end of the year.  The Act repeals this rule so that starting in 2020, you may be eligible to make traditional IRA contributions even if you're 70 1/2 or older.

2. Required minimum distribution (RMD) age raised from 70 1/2 to 72 - after 2019.

Under pre-Act law, participants in employee-provided retirement plans and IRA owners were generally required to begin taking RMDs from their plan by April 1 of the year following the year they reached 70 1/2.  Under the SECURE Act, for distributions required to be made after December 31, 2019, with respect to individuals who attain age 70 1/2 after that date, the Act increases the RMD age from 70 1/2 to 72.

3. Post-death required minimum distribution (RMD) rules modified - after 2019.

Under pre-Act law, the after-death minimum distribution rules vary depending on a) whether an employee (or IRA owner) dies before, on, or after the required beginning date, and b) whether there is a designated beneficiary for the benefit.  Under these rules, there were/are opportunities for the employee/IRA owner to name a younger beneficiary, and then when that beneficiary inherited the account, he/she would have the opportunity to take distributions from the account over his/her life expectancy (sometimes called a 'Stretch IRA' for the ability to 'stretch' out distributions over the beneficiary's lifetime).

Under the SECURE Act, the general rule is that after December 31, 2019, when an employee (or IRA owner) dies, the remaining account balance must be distributed to designated beneficiaries within 10 years after the date of death.  EXCEPTIONS to this general rule are if the beneficiary is an eligible designated beneficiary as follows:

a. the surviving spouse of the employee or IRA owner

b. a child of the employee or IRA owner who has not reached the age of majority (generally between 18-21, depending on the state)

c. a chronically ill individual

d. any other individual who is not more than ten years younger than the employee or IRA owner

The law takes effect for deaths of employees/IRA owners after December 31, 2019, so employer retirement plans / IRAs inherited before then still benefit from the prior law.

If you have any questions about the SECURE Act and its impact to your tax planning, or any other items for your tax planning, please let us know.  Please be aware of the holiday schedule and that at this point, we may not be able to respond to you until January.

We wish you and your family a Happy Holidays.  Thank you again for having us be your CPA.