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SECURE Act Changes Retirement Savings

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Updated December 27, 2019

Trust Point

We are proud of Trust Point’s century of service reputation of excellence. But, our approach and purpose has always been focused on the future. Not just our own company’s future - but, more importantly, our client’s futures.

The SECURE Act (Setting Every Community Up for Retirement Enhancement) was signed by the President into law right before the holidays, creating retirement and tax reform provisions that encourage retirement saving plans for individuals and businesses alike.  These changes, effective 1/1/2020, were enacted to take a positive step towards addressing the so-called ‘retirement crisis’, with the main goals being expanding retirement savings, improving plan administration, simplifying existing rules, and preserving retirement income.

EMPLOYEES AND RETIREES
The following SECURE Act provisions affect employer plans and IRAs whether you are a current employee or are retired.

  • Rapid Payouts for Non-Spouse Beneficiaries The most notable change of the SECURE Act, is the elimination of the so-called “stretch” provision for most(but not all) non-spouse beneficiaries of inherited IRAs and other retirement accounts.  Under current law, non-spouse beneficiaries of the retirement accounts can take annual distributions based on a calculation of their life expectancy.  Now, this will be limited to 10 years.  Anyone who dies before Jan. 1, 2020, and any existing inherited IRAs would fall under previous RMD rules. This can impact certain types of see-through trusts which have been drafted to serve as beneficiaries of retirement accounts.  Trust documentation will need to be examined for possible adjustments.
  • Contribution at Any Age Contributions to a Traditional IRA, as long as there is earned income, can now be made at any age, not just by age 70 ½.
  • New Age for RMDs Required Minimum Distributions are not required until age 72, up from 70 ½ under previous law.  The new RMD age is for anyone attaining age 70 ½ on or after 1/1/2020. Those attaining age 70 ½ prior to 1/1/2020 must continue RMDs under the old rules.
    The age for a Qualified Charitable Distribution, a rule made permanent in 2017,  remains at 70 ½ however.  This makes 1 ½ -2 years where a QCD is allowed even though there is no RMD requirement.  This could be a nice tax benefit for retirees not yet ready to take the RMD but who are charitably inclined.
  • Birth/ Adoption Tax Exception The SECURE Act also includes an allowance for a penalty-free $5,000 distribution for a qualified birth or adoption.
  • Part-Time Employee Contributions Part-time Employees who work at least 500 hours per year for three years will now have the opportunity to participate in qualified retirement plans.  Even stashing away smaller amounts will help in retirement.

EMPLOYERS
Under the new law, there are significant incentives to establish or enhance employer plans as well.

  • Automatic Enrollment Credit By including an auto-enrollment feature in their new or existing plan, small employers (defined as 100 or fewer employees) will receive a tax credit of $500 in each of the first three years the plan is maintained.
  • Startup Credit Small businesses can take advantage of a $5,000 per year tax credit for the first three years after implementing the plan.
  • Multiple Employer Plans MEPs are a group of small employers who band together to provide a qualified retirement plan.  Under the SECURE Act, this has now become much easier.  The La Crosse Chamber of Commerce has a MEP offered through Trust Point to provide a cost-effective, fully-administered plan with a team of retirement plan experts.
  • PT Employees Plan Contributions As mentioned above, the SECURE Act will now allow certain PT employees to contribute to the employer’s retirement plan.  For employers however, the current law may still be applied to contribution sources and to ADP/ACP safe harbor plans.  Employers may also exclude part-time employees from coverage, nondiscrimination, and top-heavy test rules.

While these lists are not all-inclusive of the new law it is a snapshot of the sweeping reform for retirement savings.  With Bipartisan agreement, we expect the law to be fully implemented, while understanding that more federal guidance will be needed to resolve certain matters.

As always, we will stay on top of the new SECURE Act and continue to carefully monitor your accounts to evaluate how you may impacted under the new and updated provisions. 

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Trust Point

We are proud of Trust Point’s century of service reputation of excellence. But, our approach and purpose has always been focused on the future. Not just our own company’s future - but, more importantly, our client’s futures.