The much-awaited SECURE Act was added to the “Further Consolidated Appropriations Act, 2020”. The bill passed almost unanimously by the House with a 417-3 vote earlier this year but stalled in the Senate. The senate approved and President Trump signed on December 20, 2019. The legislation puts into place many provisions that are intended to enhance retirement security.
Some of the highlights of the Act are listed below:
The age for which participants in retirement plans must begin withdrawals was increased to age 72 rather than age 70½.
This allows more growth in retirement funds. This rule applies to individuals who have not reached the age of 70½ by the end of 2019.
Age limitations for IRA contributions is eliminated, allowing individuals working after 70½ to still contribute to their IRA.
529 Plans now allow withdrawals to cover costs associated with registered apprenticeships, student loans and certain costs associated with elementary and secondary education.
401K participants are able to withdraw $5,000 for expenses relating to qualified birth or adoption without a 10% penalty.
The Act makes it easier for smaller employers to set up retirement plans by removing certain obstacles that existed.
Employers will be required to provide to employees a calculation of how much lifetime income they could receive from their retirement accounts. This will have to be provided annually.
The Act allows certain long-term part-time workers (working more than 500 hours but under 1,000) to participate in qualified retirement plans. This allows eligible part-time workers to defer taxable income and save for retirement.
The IRS will increase the credit limitation for small employer pension plan startup costs for the first credit year and each of the 2 taxable years immediately following the first credit year to the greater of $500 or the lesser of $250 for each employee of an eligible employee who is not highly compensated and is eligible to participate or $5,000.
Stipends and certain taxable non- tuition fellowship payments will be considered compensation for IRA purposes.
401K plans allow annuities to be offered as investment vehicles. This may increase the longevity of retirement fund.
If an employer adopts a stock bonus, pension, profit- sharing, or annuity plan after the close of a taxable year but before the time prescribed by law for filing the tax return (including extensions) , the employer may elect to treat the plan as having been adopted as of the last day of the taxable year. Effective for taxable years beginning after December 31, 2019.
With the SECURE Act being passed, income and estate tax planning, including a review of all plan designated beneficiaries, will be more important than before. Trusts currently designated as beneficiaries of IRAs, or set up to receive IRA distributions, should be reviewed as well.
For assistance with your client’s planning please reach out to the Citrin Cooperman Trust and Estate Practice.