The Setting Every Community Up for Retirement Enhancement (SECURE) Act was signed into law on December 20, 2019 by President Trump. It was part of spending legislation passed by the U.S. Congress. The law can be a game changer for those who have saved, or are saving, or intend to save for retirement.

Several significant changes brought about by the Act affect individuals and plan sponsors. For individuals, the time to begin taking Required Minimum Distributions (RMD) changes from 70½ years to 72 years provided that the individual was not 70½ years old before December 31, 2019. Many people are working longer, and this gives some income tax deferment for those individuals since RMDs from qualified plans are income taxable.

Another very significant change for individuals is the effective elimination of the “stretch” treatment for IRA accounts (and any other qualified plans) when the qualified plan is inherited. This affects anyone who dies after December 31, 2019. Prior to this law change, beneficiaries of qualified plans, such as IRA accounts, if named as a beneficiary, were able to essentially “stretch” the IRA over their life expectancy, delaying the cashing in of the account and the need to pay the income tax all at once. Now, the “stretch” will be limited to a total of 10 years, which in the case of children of the decedent, may be during their highest earning years, instead of allowing tax deferred growth over their lifetimes. Spouses, minor children, disabled or chronically ill individuals, and beneficiaries less than 10 years younger than the decedent are exempt.

Some other changes affecting individuals include the ability for someone over age 70½ who is still working to contribute to an IRA, similarly to the rules for contributions to 401k plans and Roth IRAs. Distributions from Section 529 plans up to $10,000 can be used for qualified student loan payments. Aid which a graduate student or post-doctoral student may receive, such as a stipend or fellowship, can be considered compensation for the purpose of making an IRA contribution. The birth or adoption of child will allow the parent to withdraw up to $5,000 from his or her IRA without paying the 10 percent withdrawal penalty, although income tax will still need to be paid on the withdrawal.

Employers might be interested in some provisions of the new law, among them the ability for unrelated employers to open a multiple-employer plan with a “pooled plan provider.” It is will be easier for employers to include annuities in 401(k) plans by eliminating some of the fiduciary requirements used to vet companies and products that the employer wishes to use. The tax credit for employers starting a plan has increased. These and other employer issues and benefits should be explored with the employer’s accountant.

This new law will affect many individuals regarding their estate plans, especially if there is a trust set up to accept IRA benefits. Timely evaluations of current estate plans may require meeting with your attorney and/or financial advisors.

The Setting Every Community Up for Retirement Enhancement (SECURE) Act was signed into law on December 20, 2019 by President Trump. It was part of spending legislation passed by the U.S. Congress. The law can be a game changer for those who have saved, or are saving, or intend to save for retirement.

Several significant changes brought about by the Act affect individuals and plan sponsors. For individuals, the time to begin taking Required Minimum Distributions (RMD) changes from 70½ years to 72 years provided that the individual was not 70½ years old before December 31, 2019. Many people are working longer, and this gives some income tax deferment for those individuals since RMDs from qualified plans are income taxable.

Another very significant change for individuals is the effective elimination of the “stretch” treatment for IRA accounts (and any other qualified plans) when the qualified plan is inherited. This affects anyone who dies after December 31, 2019. Prior to this law change, beneficiaries of qualified plans, such as IRA accounts, if named as a beneficiary, were able to essentially “stretch” the IRA over their life expectancy, delaying the cashing in of the account and the need to pay the income tax all at once. Now, the “stretch” will be limited to a total of 10 years, which in the case of children of the decedent, may be during their highest earning years, instead of allowing tax deferred growth over their lifetimes. Spouses, minor children, disabled or chronically ill individuals, and beneficiaries less than 10 years younger than the decedent are exempt.

Some other changes affecting individuals include the ability for someone over age 70½ who is still working to contribute to an IRA, similarly to the rules for contributions to 401k plans and Roth IRAs. Distributions from Section 529 plans up to $10,000 can be used for qualified student loan payments. Aid which a graduate student or post-doctoral student may receive, such as a stipend or fellowship, can be considered compensation for the purpose of making an IRA contribution. The birth or adoption of child will allow the parent to withdraw up to $5,000 from his or her IRA without paying the 10 percent withdrawal penalty, although income tax will still need to be paid on the withdrawal.

Employers might be interested in some provisions of the new law, among them the ability for unrelated employers to open a multiple-employer plan with a “pooled plan provider.” It is will be easier for employers to include annuities in 401(k) plans by eliminating some of the fiduciary requirements used to vet companies and products that the employer wishes to use. The tax credit for employers starting a plan has increased. These and other employer issues and benefits should be explored with the employer’s accountant.

This new law will affect many individuals regarding their estate plans, especially if there is a trust set up to accept IRA benefits. Timely evaluations of current estate plans may require meeting with your attorney and/or financial advisors.

The legal advice in this column is general in nature, Consult your attorney for advice to fit your particular situation.

Kathleen Martin, Esquire is licensed to practice in the Commonwealth of Pennsylvania and is certified as an Elder Law Attorney by the National Elder Law Foundation as authorized by the Pennsylvania Supreme Court. She is a principal of the law firm of O’Donnell, Weiss & Mattei, P.C., 41 High Street, Pottstown, and 347 Bridge Street, Phoenixville,610-323-2800, www. owmlaw.com. You can reach Mrs. Martin at kmartin@owmlaw.com

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