The Setting Every Community Up for Retirement Enhancement (SECURE) Act was signed into law at the end of December. The new law affects retirement plans and IRAs in a variety of mostly positive ways. One provision, however, is being panned – the restriction of the stretch IRA to a limited number of beneficiaries. This provision eliminates the option of taking minimum required distributions over the lifetime of many beneficiaries and requires payout by the end of the 10th year after the account owner’s death. This will apply to distributions from accounts whose owners died after 12/31/19. Estate plans and trusts written to take advantage of the stretch IRA may require immediate attention.
I have included a summary list of SECURE Act provisions here. I highlight some of the provisions below.
- Those working past age 70 ½ can continue contributing to IRAs and Roth IRAs.
- The start date for required minimum distributions (RMDs) changes from age 70 ½ to 72 for those attaining that age after 2019.
- Non-spouse beneficiaries of an inherited IRA must withdraw all funds by the end of year 10 after the IRA owner passed away, instead of over the lifetime of the beneficiary.
Here are some highlights for employer-sponsored retirement plans:
- Retirement plans can be adopted up to the due date (including extensions) of the tax return for the taxable year of adoption. (Previously, plans had to be adopted by the end of the plan year.)
- The law requires 401(k) plans to include part-time employees who work more than 500 hours in three consecutive years. These employees would be classified as “long-term part-time employees” and may be excluded from nondiscrimination and coverage testing and application of the top-heavy rules. This applies to plan years beginning after 12/31/20, and 12-month years beginning before 1/1/21 are not to be considered.
- To encourage sponsors to include guaranteed retirement income options under their plans, the law provides a fiduciary safe harbor for selection of a lifetime income provider under the plan.
- Two or more unrelated employers may join a “pooled employer plan” as the law allows for “Open” MEPs (multiple employer plans) to operate as a single plan. The “one bad apple” rule is eliminated, and the plan would have to file only one Form 5500 and submit to only one plan audit if required.
As the industry works through this complex legislation, I anticipate more specific information coming from our service partners. Please be on the lookout for future emails, and don't hesitate to reach out with any questions.