What's New? SECURE Act Makes Significant Changes to Retirement Accounts

The SECURE Act (Setting Every Community Up for Retirement Enhancement) became effective January 1, 2020 and makes sweeping changes to Retirement Accounts.

Important highlights include:

• Age Limit Eliminated for Traditional IRA Contributions

Beginning in 2020, the new law eliminates the age limit for traditional IRA contributions (formerly 70 ½). Now, those who are still working can continue to contribute to a traditional IRA, regardless of their age. See Eligibility in The Gold Book.

• RMD Age Raised to 72

The SECURE Act also raises the age for beginning RMDs to 72 for all retirement accounts subject to RMDs. IRA owners reaching age 70 ½ in 2020 catch a break and will not have to take their first RMD in 2020 now that the RMD deadline has been extended to age 72. See Mandatory Distributions and When Benefits Must Begin in The Gold Book.

• New Exception to the 10% Penalty for Birth or Adoption

The SECURE Act adds a new 10% penalty exception for birth or adoption. It is limited to $5,000 per individual over a lifetime. The birth or adoption distribution amount can be repaid at any future time (re-contributed back to any retirement account). See IRS Penalty Exceptions and Withdrawals Prior to Age 59-1/2 in The Gold Book.

• Elimination of "Stretch" IRA

Beginning for deaths after December 31, 2019, the stretch IRA is replaced with a ten year rule for the vast majority of beneficiaries. The rule requires accounts to be emptied by the end of the tenth year following the year of death. There are no annual RMDs. Instead, the only RMD on an inherited IRA is the balance at the end of the 10 years after death. For deaths in 2019 or prior years, the old rules would remain in place.

There are five classes of “eligible designated beneficiaries” who are exempt from the 10-year post-death payout rule and can still stretch RMDs over life expectancy. These include surviving spouses, minor children, disabled individuals, the chronically ill, and beneficiaries not more than ten years younger than the IRA owner.

See Accounts of Deceased IRA Holders and When Benefits Must Begin in The Gold Book.

Updated Life Expectancy Tables

The IRS has issued proposed regulations revising the life expectancy and distribution period tables used for determining required minimum distributions (RMDs) from qualified retirement plans, individual retirement accounts (IRAs), annuities, and other tax-favored employer-provided retirement arrangements. The proposed regulations would affect participants, beneficiaries, and plan administrators of qualified retirement plans and other retirement arrangements, as well as owners, beneficiaries, trustees, and custodians of IRAs and annuities. The updated tables generally are proposed to be applicable for distribution calendar years beginning on or after January 1, 2021.

Plan Amendments

Amendments for any required modifications are not required to be incorporated into the plan document until IRS guidance is published. It is expected that such amendments will be issued to be effective with plan year 2022. At that time, the IRS will provide the date by which amendments must be adopted. See The SECURE Act in The Gold Book.