What You Should Know About the SECURE Act Retirement Bill

The end of 2019 brought us a significant piece of financial legislation that you should be familiar with. The Setting Every Community Up for Retirement Enhancement Act of 2019, or SECURE Act, was passed as an add on to an appropriations bill, but don’t let that mislead you. It wasn’t some pork barrel legislation meant to get a congressman reelected. In fact, there are a number of provisions included in the bill that have the chance to impact your financial life at every stage. Let’s look at some of the pieces likely to affect you.

Age restrictions on IRA contributions removed (Sec. 107):

The prohibition on contributions to a traditional Individual Retirement Account (IRA) by an individual who has reached age 70-1/2 was eliminated. This means you can continue making contributions at any age provided you have earned income that at least matches the amount of the contribution.

401k participation for part-time employees ( Sec. 112):

The bill requires that long-term part-time employees who work at least 500 hours in 3 consecutive 12-month periods and have reached age 21 be included into the company’s 401(k) plan. This provision also covers employees who worked 1000 hours in the prior year.

Annuities in 401k plans:

The SECURE Act makes it easier for 401k plan sponsors to offer annuities and other “lifetime income” options to participants by reducing legal risks for the company. Annuities are now portable, too, so 401k annuity can be rolled over without being subject to surrender charges and fees. All 401(k) plans must provide lifetime income disclosure statements that show what lifetime income would be if the entire 401k balance was used to purchase an annuity.

Penalty-free withdrawals for birth or adoption (Sec. 113):

Having kids can be expensive. Adopting kids is expensive. The bill permits penalty-free withdrawals from retirement plans for expenses related to the birth of a child or adoption. The exception is up to $5,000 and both spouses can use it (totaling $10,000). The withdrawal can’t be taken before the birth/adoption and you’ll need the child’s Tax Identification Number to get the exception.

RMD age changed to 72 (Sec. 114):

The bill increases the age that requires you to begin taking distributions from taxable retirement accounts from 70-1/2 to 72.

529 qualified expenses expanded (Sec. 302):

The SECURE Act expands 529 education savings accounts to cover the costs associated with apprenticeships registered with the Department of Labor. Additionally, student loan repayments (up to $10,000 for designated beneficiary and their siblings) are now authorized as a qualified expense. That means if you somehow make it through the college years with some money left in the 529, you can use up to $10,000 of it (per child) to help repay student loans.

Stretch IRA changes (Sec. 401):

The SECURE Act modifies required minimum distribution rules with respect to defined contribution plans and IRA balances upon the death of the account holder. Under the new rules, all distributions must be made by the end of the 10th year after death except for distributions made to certain eligible designated beneficiaries. This means that you could take a distribution each month, each year, or even one distribution of the entire balance. As long as the balance of the original account owner is zero and it happens prior to the end of the 10th year after the death of the account owner, it’s following the law. This law only applies to inherited accounts beginning in 2020. If you inherited an IRA/401k prior to 2020 you’re still allowed to follow the previous rules which include a lifetime distribution option.

Increase in Penalty (Sec. 402)

Finally, not filing your taxes got more expensive. The penalty for failure to file is increased to the lesser of $400 or 100% of the amount of the tax due.