On December 20, 2019, President Trump signed into law the Further Consolidated Appropriations Act, 2020. This includes the Setting Every Community Up for Retirement Enhancement (SECURE) Act provisions previously passed by the House in April 2019. There are quite a few changes that may effect you now or in the near future. Most, if not all the changes are positive and allow you more flexibility in general. Many of the changes have already become effective as of January 1st, 2020. Below is a few of the provisions and a brief explanation of each.
Required Minimum Distributions (RMDs). The age at which required minimum distributions must begin will be increased to age 72 from age 70 ½.
Explanation- If you were born before July 1st, 1949, this does not effect your RMD at all. Even if you just turned age 70 1/2 last year you will still be required to take your RMD in 2020. But for anyone born after July 1st 1949, you can wait until the year in which you turn age 72 before you are required to start taking distributions from your Traditional IRA or 401k.
Birth/adoption excise tax exception. Penalty-free retirement plan withdrawals for a birth or adoption.
Explanation- Before age 59 1/2, you can take out money from your Retirement Account to pay for a birth or adoption and you won’t be charged the 10% penalty tax.
No maximum age for Traditional IRA contributions. You can contribute to a Traditional IRA at any age.
Explanation- Previously, you could not contribute to a Traditional IRA even if you were otherwise eligible after the age of 70 1/2, now you can.
Changes for business owners setting up company retirement Accounts
Increased Tax Credits. For new 401k’s being set up, there is an increase in tax credits for the startup costs of setting up and running the plan for the first 3 years.
Deadline to Setup New Plan. An employer has until the due date of the company tax return (with extensions) to establish a new plan for the year. Previously, the deadline was the last day of their business year.
These are some of the major parts of the new SECURE act. If you have any questions about these new rules or how to best take advantage of them, feel free to contact me.
- Neal, Richard E. “The SECURE Act of 2019.” Secure Act Section by Section, House Committee on Ways and Means, waysandmeans.house.gov/sites/democrats.waysandmeans.house.gov/files/documents/SECURE%20Act%20section%20by%20section.pdf.