The SECURE Act provisions and related FAQs
The Setting Every Community Up for Retirement Enhancement Act, commonly known as the SECURE Act (Act), is a historic piece of retirement legislation approved by Congress. It’s part of a funding bill approved by the House and Senate and subsequently signed into law by the president on Dec. 20, 2019.
This important retirement legislation reflects policy changes for employer-sponsored retirement plans, individual retirement accounts (IRAs), and 529 college savings accounts.
Group retirement plans
For changes related to the SECURE Act provisions, the deadline to make amendments to plans is the end of the 2022 plan year, or 2024 for government and collectively bargained plans. However, many of the provisions were effective January 1, 2020.
Defined contribution plans
|What it means
|Difficulty of care (foster care) payments are now treated as compensation
|Tax exempt difficulty-of-care payments can be treated as compensation when calculating the contribution limits to DC plans and IRAs.
|Applies to plan years after Dec. 31, 2015
|Waives the 10% additional tax on qualified disaster relief distributions
|Permits participants affected by presidentially declared disasters to take temporary withdrawals or loans up to $100,000. Such withdrawals or loans would not be subject to tax penalties for early withdrawals from retirement plan accounts.
|Applies during the period beginning Jan. 1, 2018, and ending on the date which is 60 days after the date of enactment. Relief doesn’t cover disasters that already received relief as part of the Bipartisan Budget Act of 2018.
|Expands allowable distribution options from 529 college savings plans
Expands 529 plan coverage for higher education costs associated with:
|Applies to distributions made after Dec. 31, 2018
FAQ: I heard you can use your 529 education savings account to cover student loans—is that true? How much?
Yes. You can withdraw up to $10,000 from a 529 plan for the purpose of paying principal and interest on any qualified education loan of the beneficiary or their sibling. This is a lifetime cap and applies per beneficiary.
|What it means
|Reduces payout period for certain non-spousal beneficiaries of DC plans and IRAs plans and IRAs to 10 years (eliminates “Stretch IRA" option for certain beneficiaries)
|Generally, upon the death of a DC plan or IRA account owner, balances are required to be distributed by the end of the tenth calendar year following the year of the employee or IRA owner’s death. This does not apply to the surviving spouse, a disabled or chronically ill individual, individuals not more than 10 years younger than the employee or IRA owner, or minor child of the owner/employee until they reach the age of majority. This change is required.
|Jan. 1, 2020 (applies to deaths occurring after Dec. 31, 2019)
FAQ: Can my client take Qualified Charitable Distribution (QCD) if age 70½? Will this satisfy an RMD?
Yes, 70½ remains the age for QCDs. And, yes, it can satisfy the RMD for that year.
|Withdrawals for birth or adoption expenses
|There’s now an exemption to the 10% penalty for early withdrawals from qualified retirement plans and IRAs for birth/adoption expenses (up to $5,000 for each birth/adoption per individual); distribution may be repaid and is not subject to the typical 60-day rollover rules.
|Jan. 1, 2020 for individuals
|Increase in age for required minimum distributions (RMDs)
|The required minimum distribution age increases from 70½ to 72 for qualified retirement plans and IRAs.
|Jan. 1, 2020
FAQ: So, tell me more about the increase in age for required minimum distributions (RMDs)? And, if someone just turned age 70½ do they have to take it now?
FAQ: What if I set up a stretch IRA prior to this rule change?
Any existing stretch IRA established on or before Dec. 31, 2019, will be grandfathered in under the previous rules.
|What it means
|Eliminates the maximum age (70½) for contributing to a traditional IRA
|There’s no longer a maximum age at which an individual still working (receiving earned income) can make a contribution to a traditional IRA. Under the Act a person age 72 and above could be contributing to a traditional IRA and be taking required minimum distributions for the same year
|Jan. 1, 2020
FAQ: With no age limit to contributions to a traditional IRA, how are RMDs handled?
If the person is still working/receiving earned income, they can contribute to their IRA, regardless of age, though they’ll also have to take a required minimum distribution once they reach age 72 (or if they reached age 70½ before Dec 31, 2019).
|Non-tuition fellowship payments and stipends can count as compensation for IRA contribution purposes
|Stipends and non-tuition fellowship payments received by graduate and postdoctoral students can now count as income for IRA contribution purposes.
|Taxable years after Dec. 31, 2019
Intended for financial professional and plan sponsor use.
Guarantees are based upon the claims-paying ability of the issuing insurance company
The subject matter in this communication is educational only and provided with the understanding that Principal® is not rendering legal, accounting, investment advice or tax advice. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, investment or accounting obligations and requirements.
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PQ12748B-03 | 1411439-112020 | 11/2020