What you need
to know about
the SECURE Act.
A Look at the SECURE Act (Setting Every Community Up for Retirement Enhancement)
(unless otherwise noted, changes begin in 2020)
Distributions and Withdrawals
Required Minimum Distributions (RMDs) now starting at age 72 instead of age 70½ providing an extra 1.5 years to grow your retirement funds.
“Stretch” IRAs are eliminated. Non-spouse IRA beneficiaries can no longer “stretch” minimum distributions (RMDs) over their lifetime. Now it must be distributed within 10 years of the IRA owner’s death unless the beneficiary is a minor, disabled, or chronically ill.
Penalty-free withdrawals up to $5,000 for birth or adoption of a child (if married, each spouse eligible for $5,000 withdrawal) without paying the usual 10% early-withdrawal penalty.
Saving for Retirement
IRA contributions can be made at any age. Prior to the SECURE Act, contributions were prohibited after age 70 ½.
Part-time employees can contribute to 401(k) plans. Beginning in 2021, employees who have worked at least 500 hours per year for at least three consecutive years are eligible to contribute to 401(k) plans.
Auto-enrollment 401(k) plans are improved for a “qualified automatic contribution arrangement” (QACA). An employee’s default contribution rate starts at 3% of annual pay and gradually increases to 6% with each year, not to exceed 10% per year. The limit has been raised to 15%, except for a worker’s first year of participation.
Graduate students and care providers can save more. Graduate or post-doctoral study or research payments (fellowships, stipends) and “difficulty of care” payments to foster-care providers are treated as compensation for purposes of making IRA contributions.
Incentives to small businesses:
- Increased tax credit of 50% of a small business retirement plan start-up costs with a maximum of $5,000.
- A new $500 tax credit for small business start-up costs for new 401(k) plans and SIMPLE IRA plans with employee automatic enrollment.
- In 2021, small businesses will have options to join together to provide retirement plans for their employees.
Annuity information is expanded, requiring 401(k) plan administrators to provide annual “lifetime income disclosure statements,” illustrating how much money you could get each month if your total 401(k) account balance were used to purchase an annuity (coming after 2020).
Credit card access to 401(k) loans prohibited. You can generally borrow as much as 50% of your 401(k) balance, up to $50,000, but funds can no longer be provided through a credit card or debit card.
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