The Setting Every Community Up for Retirement Enhancement (SECURE) Act was signed into law on Dec. 20, 2019. The purpose of the law was to expand the number of individuals who can contribute to retirement accounts. Many of the enhancements have already started for 2020. The new rules will require the trustees to update their customer reporting system to ensure they are reporting the correct information.
You are now able to market a traditional individual retirement account (IRA) to anyone who has compensation or self-employment income starting in 2020. The SECURE Act removed the maximum age of 70½ for IRA contribution.
The new general rule for beneficiaries of an IRA is that the IRA needs to be distributed within 10 years of the owner’s death. There are four exceptions to this new rule that allow the following to take the distributions over their life expectancy:
- The surviving spouse
- The owner’s minor child
- A chronically ill individual
- An individual who is not more than ten years younger than the IRA owner
Before 2020, when an individual turned 70½, they were required to take a minimum distribution from their IRA. Now any individual who turns 70½ after December 31, 2019, does not need to take a distribution until they reach 72. If an individual turned 70 ½ during 2019, then they need to follow the previous rules and take annual required minimum distribution (RMD) before April 1, 2020. The trustees for any IRA will need to update their systems to notify customers of their annual RMD.
The IRS acknowledged that it can take time to update systems to notify customers of their RMD. The IRS issued Notice 2020-6 that stated if a trustee had issued any statements to any incorrect customers due to the new rules, it has until April 15, 2020, to issue corrected statements. The IRS also encouraged trustees to remind customers that they need to take their RMDs by April 1, 2020, to help with any confusion that can occur during this transition period. The Treasury is also considering rules to address what will happen for any RMDs that occur in 2020 for individuals who were not required to take one in 2020.
The SECURE Act expanded the early withdrawal 10% penalty exception for distribution for expenses related to the birth or an adoption of a child of up to $5,000.
The competitive labor market that exists can make employers look at creating or expanding their retirement plans. The SECURE Act has changed rules to assist with retirement plans especially for smaller employers. Starting in 2021, employers can provide 401(k) plan participation to part-time employees who work at least 1,000 hours or 500 hours throughout three consecutive years. Small businesses that do not have retirement plans can now receive a tax credit of up to $5,000 to help offset the cost of setting up the retirement plan.
If you have any questions on how to assist your customers with their individual retirement planning or how your customers can provide benefits to their employees, please reach out to us for help.