The Setting Every Community Up for Retirement Enhancement (SECURE) Act passed in December 2019 is a bi-partisan set of reforms that aims to increase access to workplace savings plans and expand retirement savings. The changes are effective for all taxable years beginning after December 31, 2019 except where noted.
The highlights:
Part-time workers eligible for 401(k)s
Part-time workers who have worked at least 500 hours per year for at least 3 consecutive years and are at least 21 years old at the end of the three-year period are guaranteed 401(k) eligibility.
RMD age increased
The Required Minimum Distribution age for retirement accounts shifted from 70 ½ to 72 (only for taxpayers who reach age 70 ½ after December 31, 2019).
No maximum age for IRA contributions
The bill repeals the maximum age limitation for traditional IRA contributions (formerly restricted beginning the year a taxpayer reached 70).To go with the repeal of the maximum contribution age, taxpayers who make a Qualified Charitable Distribution must reduce the QCD exclusion by all deductible contributions to a traditional IRA made for all years ending on or after the year the taxpayers reaches age 70 ½ (but not taking into account any deductible IRA contribution already used to reduce the IRA contribution)
Penalty-free withdrawals for births or adoptions
In addition to the current penalty-free withdrawal exceptions (disability, first home purchase, etc.), new parents can withdraw up to $5,000 each from his or her own account without the 10% penalty within one year of the birth or adoption of a child. Withdrawals that are not repaid will be taxed as income.
No more stretch IRAs
Required Minimum Distributions of inherited IRAs or defined contribution plans can no longer be stretched out over the life of the beneficiary. All assets must be distributed within 10 years. Exempt from the new rule are “designated eligible beneficiaries”, which include the owner’s spouse or minor child (with the remaining balance to be distributed within 10 years after reaching majority), chronically ill or disabled individuals, or an individual not more than 10 years younger than the plan owner. The new provision applies to deaths occurring after December 31, 2019.
Fellowships and stipends can be treated as compensation
Certain taxable non-tuition fellowships and stipend payments will be treated as compensation when determining eligibility and contribution limits for retirement plans. This only applies to amounts received that were to aid the taxpayer in the pursuit of graduate or postdoctoral study.
529s can now cover apprenticeship costs
Section 529 Plans were expanded to extend tax-free treatment of higher education expenses to cover fees, books, supplies, and equipment required to participate in an apprenticeship program. The program must be one registered with the Department of Labor.
Put leftover 529 funds toward your student loans
Tax-free distributions from 529 plans may be used to make payments on qualified education loans, up to a lifetime maximum of $10,000 per plan beneficiary, and $10,000 per each of the beneficiary’s siblings.
Caregiver payments can be treated as compensation
Non-taxable “difficulty of care” payments will now be treated as compensation when determining eligibility and contribution limits for retirement plans.
TCJA Kiddie tax change repealed
The Tax Cuts and Jobs Act modification to the rules for calculating taxes on a child’s earned and unearned income have been repealed retroactively for tax years 2018, 2019, and going forward.
The bill also includes tax incentives for small employers to encourage them to offer retirement plans to their employees, outlines qualified disaster relief distributions, and greatly increases penalties for corporations who fail to file required paperwork with the IRS and the Department of Labor. You can read the full text of the bill on Congress’ website.
