SECURE Act – What you need to know
The Setting Every Community Up for Retirement Enhancement (SECURE) Act was attached to the 2020 budget bill and signed into law on December 20th by President Trump. The Act, championed by Ohio Senator Rob Portman, passed both houses with bipartisan support. The SECURE Act has changed many rules related to retirement.
Required Minimum Distributions (RMDs) Will Start at Age 72, not 70.5
In the year that you turn age 72, not 70.5, you will need to withdrawal funds annually from your IRA.
If you turned 70.5 in 2019, you will still need to take your RMD for 2019 no later than April 1, 2020. If you are currently receiving RMDs (or should be) because you are over age 70.5, you must continue taking these RMDs. Only those who will turn 70.5 in 2020 or later may wait until age 72 to begin taking required distributions.
The Act also eliminates the maximum IRA contribution age of 70.5.
Inherited Retirement Accounts
Upon death of the account owner, distributions to individual beneficiaries must be made within 10 years. There are exceptions for spouses, disabled individuals, and individuals not more than 10 years younger than the account owner. Minor children who are beneficiaries of IRA accounts also have a special exception to the 10-year rule, but only until they reach the age of majority.
Adoption/Birth Expenses
The new law allows penalty-free withdrawals from retirement plans for birth or adoption expenses, up to certain limits.
Annuities in some 401(k) plans
The SECURE Act will promote insurance products in Safe Harbor 401(k) plans. Businesses in the past were reluctant to allow annuities to be attached to their 401(k) plans due to their fiduciary duty to work in the best interest of the plan participants. If an insurance provider selling the annuities goes out of business or defrauds the participants, the participants can no longer sue the employer.
We believe that this is a bad change. The annuities that could benefit 401(k) participants are not sold by the insurance companies that will be pushing these products. In making this change, the government just gave keys to the fox to hang out in the hen house. Our guidance to participants will be to stay away from the annuity but keep contributing to the 401(k).
Small Business Tax Credit for New 401(k) Plans
Businesses that offer a new retirement plan can receive $5,000 tax credit and small businesses that offer auto enrollment will get a $500 credit.
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