The SECURE Act Presents Some Big Changes for IRA and 401(k) Owners

On December 20th, 2019 Congress passed a spending bill which included some long-overdue improvements to IRA, 401(k) and College 529 features. The policy changes to retirement accounts add more flexibility on when contributions can be made, required distribution ages, and what distributions can be taken without penalty. Below are some of the highlights to be aware of:

Key Changes:



• Repeals the maximum age for traditional IRA contributions, which is currently 70½.

  • Anyone with earned income can contribute to an IRA, even if they’ve begun taking required minimum distributions.

• Increases the required minimum distribution (RMD) age for retirement accounts to 72 (up from 70½).

  • Anyone who hasn’t begun taking RMD’s can wait until the year they turn 72. If you turned 70.5 in 2019, you still must stay on schedule.

• Allows long-term, part-time workers to participate in 401(k) plans

  • In the past, most employees were ineligible to contribute to a 401(k) if they worked under 1,000 hours per year. Now employees who’ve worked 1,000 hours in one year, or over 500 hours over 3 years should be eligible.

• Small business owners can receive a tax credit for starting a retirement plan in 2020

  • The start-up credit is $250 per non-highly compensated employee, and is spread out over 3 years. This applies to businesses with up to 100 employees.

• Permits parents to withdraw up to $5,000 (If married, each spouse can withdraw $5,000) from retirement accounts penalty-free within a year of birth or adoption of a child.

• Allows parents to withdraw up to $10,000 from College 529 plans to repay student loans.

• Inherited IRA or 401(k) account must be drawn down within 10 years following the death of the account holder.

o    Exceptions include assets left to a surviving spouse, a minor child, a disabled or chronically ill beneficiary, and beneficiaries who are less than 10 years younger than the original account owner.

Of course, this information is general in nature and shouldn’t be considered investment, legal or tax advice. If you’d like to review how the Secure Act impacts your specific situation, please call our office at 530-487-1777.