The Setting Every Community Up for Retirement Enhancement (SECURE) Act has passed. Here’s what you need to know.
Delay the Start of Required Minimum Distributions (RMDs)
Currently, plan participants and IRA owners must begin taking distributions at age 70½. The SECURE Act delays RMDs until age 72 for anyone who has not yet started distributions. This provision recognizes that life expectancy has increased since the first RMD rules were created in 1986.
Eliminate “Stretch” IRAs
The SECURE Act requires beneficiaries to completely withdraw inherited IRAs and retirement plans within 10 years and pay the resulting tax liability. The 10-year rule does not apply to some beneficiaries, such as surviving spouses, disabled individuals, minors, and those who are not more than 10 years younger than the account owner. Since retirement accounts make up the largest share of many Americans’ net worth, investors are encouraged to consider other and more comprehensive estate planning strategies for their retirement assets.
Expansion of Section 529 Plans
The legislation expands 529 education savings accounts to cover costs associated with registered apprenticeships; homeschooling; up to $10,000 of qualified student loan repayments (including those for siblings); and private elementary, secondary, or religious schools.
Repeal of Age Limitations for IRA Contributions
The legislation recognizes that more Americans are living longer and working past normal retirement age. As a result, the SECURE Act permits those over age 70½ with earned income to contribute to a traditional IRA.
Increased Tax Credits for Small Businesses
Small businesses can receive a tax credit for retirement plan start-up costs up to $5,000, dependent by the number of non highly compensated employees. An additional tax credit of $500 a year for three years will be available if the plan offers automatic enrollment. Eligible employees will be automatically enrolled in the plan and will have to affirmatively elect out if they do not want to participate. Automatic enrollment increases both plan participation and savings rates among employees.
Expansion of Multiple-Employer Plans
The Act permits unrelated small businesses to share the administrative and financial burden of establishing and maintaining a retirement plan. It also shields employers from the breach of another’s administrative and fiduciary duties.
Expansion of Plan Eligibility to Long-Term Part-Time Employees
The SECURE Act expands employee coverage to those that have worked at least 500 hours per year for the past three consecutive years.
Annuities and Lifetime Income Options in Retirement Plans
The SECURE Act includes several provisions that encourages employers to offer guaranteed lifetime income options in their retirement plans. The legislation simplifies some of the compliance and fiduciary rules by offering a safe harbor provision for annuities. It also requires the plan sponsor to provide plan participants with an annual disclosure that estimates the monthly payment an employee will receive at retirement.