The Setting Every Community Up for Retirement Enhancement Act of 2019, better known as the SECURE Act, was approved on December 19, 2019. This bill includes significant provisions aimed at increasing access to tax-advantaged accounts and preventing older Americans from outliving their assets.
The SECURE Act tweaks several rules related to tax-advantaged retirement accounts. Here’s what it will do:
- Make it easier for small businesses to set up 401(k)s by increasing the cap under which they can automatically enroll workers in “safe harbor” retirement plans, from 10% of wages to 15%.
- Provide a maximum tax credit of $500 per year to employers who create a 401(k) or SIMPLE IRA plan with automatic enrollment.
- Enable businesses to sign up part-time employees who work either 1,000 hours throughout the year or have three consecutive years with 500 hours of service.
- Encourage plan sponsors to include annuities as an option in workplace plans by reducing their liability if the insurer cannot meet its financial obligations.
- Push back the age at which retirement plan participants need to take required minimum distributions (RMDs), from 70½ to 72, for those who are not 70½ by the end of 2019.
- Allow the use of tax-advantaged 529 accounts for qualified student loan repayments (up to $10,000 annually).
- Permit penalty-free withdrawals of $5,000 from 401(k) accounts to defray the costs of having or adopting a child.
- Encourage employers to include more annuities in 401(k) plans by removing their fear of legal liability if the annuity provider fails to provide and not requiring them to choose the lowest-cost plan. (This could be something of a double-edged sword. Employees will need to look extra-carefully as these options.)
One other key change in the new bill is paying for all this: the removal of a provision known as the stretch IRA, which has allowed non-spouses inheriting retirement accounts to stretch out disbursements over their lifetimes. The new rules will require a full payout from the inherited IRA within 10 years of the death of the original account holder, raising an estimated $15.7 billion in additional tax revenue. (This will apply only to heirs of account holders who die starting in 2020.)
Contact David Murdock at Servion Financial Advisors with any questions at (651) 765-6778.
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