Do you know how the SECURE Act impacts retirement plans? Below is a short list with explanations of the main elements that impact our clients. This list is not comprehensive. We advise you to consult your financial and/or tax professional to help you navigate the new law.
The maximum age to contribute to traditional IRAs has been eliminated, and you can now make contributions as long as you have earned income, regardless of your age.
Required minimum distributions (RMDs) now begin at 72 years of age instead of 70 ½.
Elimination of the stretch IRA in that distributions from beneficiary IRAs must now be taken within 10 years of the date of the IRA owner’s death. In previous years, non-spousal beneficiaries took RMDs from inherited IRAs based on that beneficiary’s life span. But, there are exceptions to the new 10-year rule, and spouses still enjoy the ability to treat their spouses’ IRAs as their own.
Qualified birth or adoption distributions may be taken from retirement plans—penalty free.
The law allows parents to take withdrawals of up to $5000 in these instances as “qualified birth or adoption distributions.” These funds can be repaid to the IRA at any time. However, the funds cannot be used to adopt a spouse’s child.
401(k) accounts can now be established for the previous year after December 31st as long as the plan was created before the business filing date—including extensions.
Part-time employees are now able to participate in 401(k) plans provided they meet updated qualifications. This is another great way the SECURE Act impacts retirement plan. An, there are two ways to qualify for this benefit: The part-timer must have completed one year of employment and have worked at least 1000 hours in that year; or the employee must have worked no less than three consecutive twelve-month periods for the employer with a minimum of 500 work hours completed. There are exceptions to those who fall into the latter category, so check with your employer for specific details.
The cap for autoenrollment to safe harbor plans is now 15 percent instead of 10 percent. This allows a 5 percent increase in retirement savings for employees who participate in safe harbor 401(k) plans that allow qualified automatic contribution arrangements (QACAs). And, that automatic enrollment contribution amount must not exceed 15 percent of the employee’s eligible compensation.
Allowance for 403(b)s to make distributions of individual custodial accounts to effectuate termination. In the past, the termination rules didn’t include individual custodial accounts.
This article covers only the sections mentioned in each of our top eight categories above. You can find additional information regarding each section, as well as details of the SECURE Act impacts retirement plans and more in full in this publication by the House Committee on Ways and Means.
If you have questions about how these new provisions impact your self-directed retirement plans, contact Advanta IRA. We are happy to connect and help you understand those details.
Recommended additional reading:
This article is for informational purposes only and should not be considered tax, legal, or investment advice. Please consult the appropriate professional for guidance as to how the SECURE Act pertains to you.