The newly signed Setting Every Community Up for Retirement Enhancement Act (SECURE Act), which is part of the government’s new spending bill, includes a variety of changes for individuals with retirement accounts. This Act effectively overhauls certain rules for retirement plans to enhance employee contributions, raises the required minimum distribution age, and gives incentives for employers to increase 401(k) participation. A few significant changes include:
Delay required minimum distribution (RMD) date. Current retirement plan participants and IRA owners must generally start taking distributions at age 70½. The new legislation delays the required minimum distribution age until age 72, for those who reach the age of 70½ in 2020 or after.
Age limitations for Traditional IRA contributions. As lawmakers recognize that more Americans are living and working longer, and there is concern that a significant portion of Americans are at risk of outliving their retirement funds, the SECURE Act will allow those working over age 70½ to contribute to a traditional IRA for tax year 2020 and beyond.
Expanded retirement plan coverage. The legislation seeks to expand retirement plan coverage by making it easier for small companies to join together to offer 401(k) plans and share administrative costs. An estimated 30% of private-sector employees work for employers that don’t currently offer a way to save for the future.
Increased contribution limit. The SECURE Act increases the contribution cap from 10% to 15% of wages for employees enrolled in automatic-enrollment safe harbor retirement plans.
No more stretch IRAs. The SECURE Act requires non-spouse beneficiaries of inherited IRAs to withdraw all assets within 10 years of the IRA owner’s death. Non-spouse beneficiaries can no longer stretch the distributions over their life expectancy (exceptions apply). For these beneficiaries there are no required minimum distributions within those 10 years, but the entire balance must be distributed by the end of the 10th year. The new law applies to deaths occurring post 12/31/2019.
Feel free to contact your representative at DKC if you have any questions on how this may impact you or would like more information on the legislation described above.