SECURE Act Part Two

If you haven't read the first part of this discussion on the SECURE Act, you can do so here. Let’s take a look at some of the other elements of the recently passed SECURE Act (or you can read the whole thing yourself here if you like).

New Credit

Congress gave small businesses (those with fewer than 100 employees) a new credit for setting up a retirement plan, if there is an automatic contribution provision. This basically means employees have to opt out of participating if they are eligible. If you implement a new plan, or modify an existing plan, you will receive a $500 credit for three years. Plans have to be modified or established AFTER 12/31/19.

Revised IRA Rules

‍Prior to the SECURE Act, individuals over 70.5 couldn’t make contributions to an IRA. The Act removed that restrictions so that now there are no age restrictions for contributions to either a traditional or Roth IRA account. The downside is that if you are over 70.5 the amount of your contribution does reduce the amount that you can make as charitable distribution from your IRA. Again these rules take effect after 12/31/19.

Congress also eliminated the 10% early distribution penalty for IRA withdrawals for expenses related to a birth or adoption (up to $5,000). You will still have to pay income tax on the amount, but no penalty. You have one year from the date of birth or adoption to take the distribution, but births or adoptions in 2019 count.  So, if you had a child on 1/1/19, you are eligible for a penalty free distribution 1/1/20.

The required minimum distribution age was increased to 72 for traditional IRA’s, beginning 12/31/19. Previously it was 70.5. Remember, you are not required to take minimum distributions from Roth IRAs.

One negative provision in the Act is that the required minimum distributions timeline for inherited IRA accounts was shortened. Now beneficiaries who are not surviving spouses have only 10 years from the date of death to fully distribute the IRA balance. There is no minimum amount for each year, so that does give you some more flexibility to plan your income for a specific year. Surviving spouses, minor children, disabled or chronically ill individuals, as well as individuals not more than 10 years younger than the IRA owner still use the old rules for distributions. This provision applies to owners that die AFTER 12/31/19, so if you inherited and IRA from somebody in 2019, the old rules still apply to all future distributions.

Revised 529 Rules

For 529 college savings plans, higher-education expenses now include fees, books, supplies, and required equipment as well as principal and interest payments on qualified education loans. The loan payments are limited to $10,000 per individual loan holder, and you can then no longer deduct the interest on your return. Unlike the other provisions of the Act, this applies to distributions beginning 1/1/19.

‍If all this information simply leaves you with more questions, use the button below to schedule a free consultation today. We're looking forward to hearing from you!