The New SECURE Act: Key Highlights for 2020

Posted on 1/24/2020

We go to work in pursuit of some goal: finish the project, launch the new product, close the big deal. And we’re all great workers, of course, so we’re motivated to achieve these goals. But, all of those goals really just benefit the company. Yes, there is satisfaction in completing what you’ve set out to do in your career but, let’s be honest, we’re really all working towards one personal goal – retirement!

With that in mind, I thought it would be interesting and helpful to cover the key changes to retirement accounts based on the SECURE Act that was signed into law on December 20, 2019. SECURE is an acronym for Setting Every Community Up for Retirement Enhancement – surely, they chose the letters first and then forced in a title to fit. The goal of the law is to improve the accessibility and ease of saving for retirement. Most of the provisions of the law went into effect at the beginning of 2020.

Let’s highlight some of the key updates:

Required Distributions Start Later
You can now wait until 72 to take your required minimum distributions (RMDs). Previously, you were required to begin receiving these payments at 70½. Extra time should mean extra money since it has more time to grow.

You’re Eligible to Make IRA Contributions After 70½ 
As long as you’re still working, you can continue to contribute to your traditional IRA account. Eligibility used to be lost at 70½, now there is no age limit.

Long-Term, Part-Time Workers Are Able to Join Company 401(k) Plans
Employers maintaining a 401(k) plan are now required to offer the plan to anyone who worked more than 1,000 hours in one year or 500 hours for 3 consecutive years. There is an exception in the case of collectively bargained plans.

Distributions from Inherited IRAs and 401(k) Plans Need to be Taken Within 10 Years
IRAs that are inherited from original owners who have passed away on or after January 1, 2020, are required to be withdrawn by the beneficiaries within 10 years, in most cases. Exceptions are made in situations where the beneficiary is a surviving spouse, minor child, disabled, chronically ill, or less than 10 years younger than the original IRA owner. Previously, beneficiaries were able to stretch these distributions over their single life expectancy.

Withdrawals of $5,000 Per Parent Are Penalty-Free Upon Birth or Adoption of a Child
Individuals are now permitted to take a $5,000 distribution for applicable plans, such as a 401(k) or IRA, without incurring a penalty. You can also repay them as a rollover contribution to applicable contribution plans or IRAs.

You Can Pay Up To $10,000 of Student Debt With a 529 Fund
Families that have funds remaining in a college savings plan after a student graduates can now use that account to pay up to $10,000 of student debt over the course of the student’s lifetime.

These are just a few of the key changes to the laws. You should consult your accountant, attorney, and financial advisor to see what specifically pertains to you. Obviously, you want to take advantage of any benefits that affect you, but you’ll also want to make adjustments to protect your beneficiaries as well.  

Questions, comments, feedback? jared@ware2now.com

Sources and Additional Reading:

https://www.forbes.com/sites/christinefletcher/2020/01/10/will-the-secure-act-make-your-retirement-more-secure/#55325692d428
https://www.washingtonpost.com/business/2020/01/13/secure-act-is-exposing-ugly-truth-about-peoples-hatred-paying-taxes/
https://www.fidelity.com/learning-center/personal-finance/retirement/understanding-the-secure-act-and-retirement