January 2020
Financial Planning

The Secure Act: 

The Setting Every Community Up for Retirement Enhancement (SECURE) Act is a bill designed to expand opportunities for individuals to increase their retirement savings. The bill passed the U.S. House of Representatives in July 2019 but was not expected to pass the Senate. In a surprise move, the legislation was included in the spending and tax-extension bill which flew through the Senate on December 19th and was signed by President Trump on the 20th. Here are a few of the major highlights that will go into effect for 2020. 

Stretch IRA Provisions Substantially Modified: 

One of the most significant changes made by the SECURE Act to is the elimination of the ‘Stretch’ provisions for most non-spouse beneficiaries of defined contribution plans and IRA accounts. Under this 10-Year Rule, the entire inherited retirement account, including both IRA’s and ROTH IRA’s, must be distributed by the end of the 10th year following the year of inheritance. 

There are five groups of designated beneficiaries to which the new 10-Year Rule will not apply. They are referred to as “Eligible Designated Beneficiaries”: 

• Spousal beneficiaries

• Disabled beneficiaries – with exception

• Chronically ill beneficiaries - with exception

• Individuals who are not more than 10 years younger than the decedent

• Certain minor children of the original retirement account owner, but only until they reach the age of majority.  

IRA Changes: 

RMDs from age 70 ½ to age 72: This change to the new required beginning date for Required Minimum Distributions (RMDs) only applies to those individuals who turn 70 ½ in 2020 or later. So even though an individual turning 70 ½ on December 20, 2019 will not yet be 72 in 2020, they will still be required to continue RMDs under the existing rules, and to take an RMD for 2020. 

Qualified Charitable Donations: There are no changes to the date at which individuals may begin to use their IRAs (and inherited IRAs) to make QCD’s. Even though an individual turning 70 ½ in 2020 will not have to take an RMD for 2020, they may still use their IRA to make a QCD of up to $100,000 for the year, subject to certain adjustments outlined below. 

IRA Contribution Age Changes: Beginning in 2020, individuals of ANY AGE will be allowed to contribute to a Traditional IRA, provided such individuals or their spouses have “compensation” – defined as income earned from either wages or self-employment. The maximum QCD, defined above, would be reduced by the amount of any pre-tax contributions to an IRA or spousal IRA. 

529 Plans: 

The SECURE Act introduces a new provision for using 529 Plan money to pay for “Qualified Education Loan Repayments,” which may be used to pay the principal and/or interest of qualified education loans and are limited to a lifetime amount of $10,000. The $10,000 lifetime limit is a per-person limit, and in addition to using the funds in a 529 plan to pay for the 529 plan beneficiary’s debt, an additional $10,000 may be distributed as a qualified education loan repayment to satisfy outstanding student debt for each of a 529 plan beneficiary’s siblings. 

The SECURE Act also includes several other key changes and updates to current law: 

• An allowance for a penalty-free distribution up to $5,000 for a qualified birth or adoption

• The creation of a Fiduciary Safe Harbor for selecting a “Lifetime Income Provider” (i.e., annuity company) for ERISA fiduciaries

• A substantial increase in the tax credit available to small businesses when establishing a retirement plan. As well as a brand-new tax credit for small businesses that adopt an “auto-enroll” provision in their retirement plans

• An increase in the allowable auto-enrollment “default” 401(k) plan contribution, improved access to employer plans for long-term part-time workers

• A repeal of the Kiddie Tax, which reverts away from a requirement to use trust tax brackets and back to using the parents’ top marginal tax bracket

• Adjustments to the medical expense deduction threshold (back to 7.5%-of-AGI again for 2019 and 2020

As with any new large-scale change, it is always important to evaluate these changes to your own financial life and retirement plan. If you feel like you have additional questions, do not hesitate to reach out to us so we can discuss how any of these changes may impact your personal financial plan. 

If you have questions, please contact us.

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401(K) ALLOCATION
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