The Setting Every Community Up for Retirement Enhancement Act, better known as the SECURE Act, was signed into law on Friday, December 20, 2019. Many of these changes went into effect on January 1, 2020.
Here are the major changes created by the new law:
- New Age Requirements for Required Minimum Distributions (RMDs). Because people are living and working longer, the Act has raised the age from 70 1/2 to 72 . This rule does not affect anyone that turned 70 1/2 before January 1st, 2020. If you turned 70 1/2 last year, you will be required to take out RMDs.
- Inherited Retirement Accounts– Eliminating the Stretch IRA Certain beneficiaries of IRAs and 401(k) plans can no longer hold off on paying the tax penalties on withdrawals in perpetuity. Taxes will need to be paid within 10 years depending on who is the beneficiary at the time.
- Clients Can Contribute to their Traditional IRA after 70 1/2 You can contribute to your traditional IRA in the year you turn 70 1/2 and beyond, provided you have earned income. You may not make any 2019 traditional IRA contributions if you are older than 70 1/2
- Parents-Adoption/Birth Expenses The new law allows penalty-free withdrawals from retirement plans for birth or adoption expenses up to certain limits.
- Tax incentives for Small Business Owners to Offer a 401(k) The Act has made setting up a retirement plan more affordable for small businesses. The tax credit will increase from the current cap of $500 up to $5,000 in certain circumstances.
If you have further questions, want to set up an IRA or have us manage your company’s 401(k), please do not hesitate to reach out to us.