The “Setting Every Community Up for Retirement Enhancement” (SECURE) Act was signed into law and is in effect on January 1, 2020. The new law impacts retirement plans and IRAs in a variety of mostly positive ways, but one provision restricts the stretch IRA to a limited number of beneficiaries. The provision eliminates the option of taking required minimum distributions over the lifetime of many beneficiaries and requires payout by the end of the 10th year after the account owner’s death. This will apply to distributions with respect to individuals dying after 12/31/19 and there is concern that estate plans and trusts written to take advantage of the stretch IRA will require immediate attention.
WE HAVE HIGHLIGHTED THE PROVISIONS OF THE SECURE ACT BELOW
- Those working past age 70 ½ can continue contributing to IRAs and Roth IRAs.
- The start date for required minimum distributions (RMDs) changes from age 70 ½ to 72 for those attaining that age after 2019.
- Non-spouse beneficiaries of an inherited IRA must withdraw all funds by the end of year 10 after the IRA owner passed away instead of over the lifetime of the beneficiary.
- Retirement plans can be adopted up to the due date (including extensions) of the tax return for the taxable year of adoption. Previously, plans had to be adopted by the end of the plan year.
- The three-year business tax credit for plan startup costs increased from a current cap of $500 to up to $5,000 in certain circumstances and provides a concurrent $500 tax credit for three-year plans adding auto-enrollment for new hires.
- The law eliminates participant safe harbor notice for QNEC safe harbors. The safe harbor notice will still be required for matching safe harbor plans. This will apply to plan years beginning after 12/31/19.
- The law requires 401(k) plans to include part-time employees who work more than 500 hours in three consecutive years. These employees would be classified as “long-term part-time employees” and may be excluded from nondiscrimination and coverage testing and application of the top-heavy rules. This applies to plan years beginning after 12/31/20 and 12-month years beginning before 1/1/21 are not to be considered.
- Two or more unrelated employers may join a “pooled employer plan” as the law allows for “Open” Multi-Employer Plans (MEPs) to operate as a single plan. The “one bad apple” rule is eliminated, and the plan would have to file only one Form 5500 and submit to only one plan audit if required.
As the industry works through this complex legislation, we anticipate more specific information coming from regulators and administrators. Our team would be happy to answer any questions you might have!