How the Secure Act impacts retirement planning

The Setting Every Community Up for Retirement Enhancement (SECURE) Act was signed into law on December 20, 2019 by President Trump. It was part of spending legislation passed by the U.S. Congress. The law can be a game changer for those who have saved, or are saving, or intend to save for retirement.

Several significant changes brought about by the Act affect individuals and plan sponsors. For individuals, the time to begin taking Required Minimum Distributions

(RMD) changes from 70½ years to 72 years provided that the individual was not 70½ years old before December 31, 2019. Many people are working longer, and this gives some income tax deferment for those individuals since RMDs from qualified plans are income taxable.

Another very significant change for individuals is the effective elimination of the “stretch” treatment for IRA accounts (and any other qualified plans) when the qualified plan is inherited. This affects anyone who dies after December 31, 2019. Prior to this law change, beneficiaries of qualified plans, such as IRA accounts, if named as a beneficiary, were able to essentially “stretch” the IRA over their life expectancy, delaying the cashing in of the account and the need to pay the income tax all at once. Now, the “stretch” will be limited to a total of 10 years, which in the case of children of the decedent, may be during their highest earning years, instead of allowing tax deferred growth over their lifetimes. Spouses, minor children, disabled or chronically ill individuals, and beneficiaries less than 10 years younger than the decedent are exempt.

Some other changes affecting individuals include the ability for someone over age 70½ who is still working to contribute to an IRA, similarly to the rules for contributions to 401k plans and Roth IRAs. Distributions from Section 529 plans up to $10,000 can be used for qualified student loan payments. Aid which a graduate student or post-doctoral student may receive, such as a stipend or fellowship, can be considered compensation for the purpose of making an IRA contribution. The birth or adoption of child will allow the parent to withdraw up to $5,000 from his or her IRA without paying the 10 percent with