SECURE Act Affects Retirement Account Rules for Individuals and Businesses

The SECURE Act: Changes to Retirement Account Rules Affect Individuals and Businesses

In December of 2019, The Setting Every Community Up for Retirement Enhancement Act of 2019 (The SECURE Act) enacted many provisions that could impact retirement savings and planning for individuals.  Below, we have outlined several significant changes that were enacted by the law, effective January 1, 2020, that affect individuals:

1. Increase in RMD age: The beginning age for taking required minimum distributions increased from 70 ½ to 72 for account owners who turn 70 ½ after December 31, 2019.
   • Owners of traditional IRAs can now also make contributions past the age of 70 ½.

2. Qualified Birth or Adoption Distribution: Taxpayers who are having a baby or adopting can take a distribution from an IRA or 401(k) of up to $5,000 per individual ($10,000 for married couples), without having to pay the 10% early distribution penalty for pre-age 59 ½ withdrawals.

3. Expansion of Section 529 Plans: Qualified distributions can now be paid out of 529 education savings accounts to cover costs associated with registered apprenticeship programs, and to repay up to $10,000 of qualified student loan debt.
   • Qualified student loan withdrawals have a lifetime cap of $10,000 for any individual, and can be used to repay qualified student loans of the designated beneficiary, or any siblings of the designated beneficiary.

4. New Rules for Inherited IRAs: In most cases, inherited retirement accounts must now be fully liquidated within 10 years of the account owner’s death.

The SECURE Act also enacted several provisions that may be beneficial for business owners and managers.

1. Credit to offset qualified start-up costs: Certain employers may qualify for a tax credit (can be up to a maximum of $5,000) to offset qualified start-up costs when adopting a new qualified retirement plan.

2. Automatic enrollment credit: Certain eligible small employers may now claim a credit of up to $500 per year for three years by converting an existing plan to an automatic enrollment plan (which provides the default for new participants to defer compensation at an established rate into the plan; participants can still opt out or adjust the rate).

3. Timing the adoption of a new plan: Plans that are adopted by the income tax filing due date of your business (including extensions) may now be treated as having been in effect during the tax year. Prior to the Act, a qualified employer retirement plan had to be established no later than the last day of the tax year.

4. New options for reducing administrative costs: Certain groups of unrelated employers may now file a single Form 5500, which could reduce administrative costs for employers. The Act also directed the IRS to develop a simplified group filing option for plan years beginning after December 31, 2021.

5. Part-time employee eligibility: Long-term employees working 500 or more hours per year for three consecutive years will now be eligible to participate in employer provided 401(k) plans.

6. New restriction for plan loans: Retirement plans are now barred from making loans through credit cards or similar arrangements. Any such advance to an employee will now be treated as a distribution to the employee.

The SECURE Act contains many additional complex provisions which were not outlined above. Please contact us if you have any questions regarding how these changes may impact your retirement savings, future retirement planning, or if you think your business may be eligible for some of the new credits.