Legislative Changes - SECURE ACT

President Trump signed into law the Further Consolidated Appropriations Act of 2020 (FCAA). This included the most comprehensive retirement reform since the Pension Protection Act of 2006. The act will force several changes to the current retirement plan system.

Below we summarize the key take-aways you need to be aware of: 

• Required minimum distribution (RMD) age raised to 72 from 70.5: This pushed back the age at which you are required to start taking distributions from your qualified accounts. The bottom line is that if you did not turn 70.5 before Dec. 31, 2019, you can now wait until age 72 to start taking your required minimum distributions.
   
• Repeal the maximum age for traditional IRA contributions: This allows individuals still working past age 70.5 to continue making IRA contributions.
   
• Changes to the minimum distribution rules for IRA beneficiaries (end of the “stretch IRA”):  IRA heirs/beneficiaries will now have to withdraw the assets within 10 years, rather than “stretching” these distributions based on their entire life expectancy. The law takes effect for  IRA owners who die after Dec. 31, 2019. The new legislation does have exceptions to the 10-year payout rule. Surviving spouses, disabled or chronically ill heirs, heirs no more than 10 years younger than the IRA owner, minor children (not grandchildren) up to age 18 or 21 (depending upon the state), and minor children up to age 26 (if still in school) are all considered exceptions. Note there are no required minimum distributions within the 10-year period, meaning you could “bunch” your required distribution(s). 
  
  The two-fold concern created by the new tax law is that not only must all of the tax on the IRA be paid much earlier than in the past, but the tax rate on the withdrawals will likely be much higher than in the past due to bunching of income during a period of time when the recipients or beneficiaries are likely to be in their peak earning years. Due to these concerns, nearly every person should review their plan to assure that they will utilize their IRAs in a way that is most efficient for their family. This may include, for example: taking larger IRA distributions during your lifetime, leaving an IRA to tax beneficiaries with lower incomes and other assets to tax beneficiaries with higher incomes, withdrawing additional IRA funds early and purchasing life insurance (second to die policy) or utilizing certain trusts. While there are certainly planning alternatives, the proper approach will be unique to each family’s specific set of circumstances. 
   
• Long-term part-time workers eligible for 401(k) plans
   
• Withdrawals of up to $5,000 from IRAs allowed penalty-free for parents within a year of birth or adoption for certain qualified expenses
   
• Allows for the 10% automatic contribution cap in 401(k) plans to be increased 
   
• Multiple employer plans expansion (MEPs): This allows businesses of differing sizes, sectors and locations collectively to offer retirement programs to their workers under so-called open multiple employer plans (MEPs).