The Setting Every Community Up for Retirement Enhancement Act of 2019 (“Secure Act”) was passed by the U.S. Congress and signed into law by the President in December 2019. The Secure Act is the most significant retirement legislation in many years. This article contains a summary of some of the key provisions of the Secure Act, which became effective on January 1, 2020.
The Secure Act contains provision for a withdrawal of up to $10,000 from §529 plans to repay student loans. This is significant because potentially students who take advantage of this new change will incur less interest by paying the debt off more quickly.
401(k) Plan Coverage of Long-Term, Part-Time Employees
Prior to the Secure Act, a part-time employee could be excluded from participating in a 401(k) plan if the employee did not complete at least 1,000 hours of service in a year. The Secure Act generally modifies this eligibility requirement to cover employees who complete either one year of service (i.e., at least 1,000 hours in a year) or three consecutive years of service where the employee completes at least 500 hours of service per year. This means that long-term part-time employees may now be eligible for employer qualified plans like 401(k) plans.
Increase in Age for Required Beginning Date for Mandatory Distributions
The Secure Act changes the required minimum distribution (“RMD”) rules for defined contribution plans and IRAs upon the death of an employee or IRA owner. The Act changes the age of initiation for RMDs from 70 ½ to 72. This is a huge benefit. That means that the age at which we must stop contributing to our IRAs has been increased allowing individuals working into their later years to continue to contribute to their IRAs, allowing them the opportunity to increase, or catch up with, their retirement savings goals.
More Modifications to Required Minimum Distribution Rules
Under the old law, designated beneficiaries of inherited retirement accounts could elect to take distributions over their individual life expectancy. For example, an 18-year old beneficiary with a 65-year life expectancy would stretch out the distributions over 65 years. However, under the Secure Act, upon the death of an employee or IRA owner, account balances are generally required to be distributed to a beneficiary by the end of the 10th calendar year following the year of the employee’s or IRA owner’s death.
The Secure Act does provide a few exceptions to this new mandatory ten-year withdrawal rule:
- A surviving spouse named as a beneficiary of an IRA may still roll the benefits over to their own IRA or take distributions based on their own life expectancy.
- Beneficiaries who are less than ten years younger than the account owner may still take distributions based on their life expectancy.
- The account owner’s children who have not reached the “age of majority” don’t have to deplete the account until 10 years after they reach the “age of majority.”
- Disabled individuals and chronically ill individuals may take distributions based on their life expectancy.
Penalty-Free Withdrawals from Retirement Plans in Case of Childbirth or Adoption
The Secure Act permits penalty-free withdrawals of up to $5,000 from certain plans and IRAs for expenses incurred in connection with the birth or adoption of a child. However, such withdrawals may only be made during the one-year period following the birth or adoption of a child.
Increase to Small Employer Tax Credits
The Secure Act increases up to a maximum of $5,000 per year the amount of the income tax credit available to small employers (that is, employers with 100 or fewer employees) for qualified start-up costs of adopting a new qualified retirement plan. In addition, the Secure Act creates a new tax credit of up to $500 per year for small employers that establish a qualified retirement plan that includes automatic enrollment or add automatic enrollment to an existing retirement plan. Both credits are available for up to three years.
About Harrison Oldham
Harrison grew up in Mansfield, Texas. He attended Texas A&M University for his bachelor’s degree, where he met his wonderful wife, Kelsey. After graduating magna cum laude from Texas A&M, he attended SMU Dedman School of Law, graduating with honors in 2012. Today, Harrison and his wife live in Dallas, Texas with their son, Teddy.
Since graduating from SMU Law, Harrison has worked exclusively in the field of business law. He has spent time in private practice and in-house, working with clients of every size; from single person startups to Fortune 250 companies. Today his practice focuses on serving the diverse needs of businesses and individuals throughout Texas. You can learn more about Harrison by visiting his website, at: http://