ForeField Quick Summary of Secure Act 

The full act can be found here -

https://www.congress.gov/bill/116th-congress/house-bill/1865/text#toc-HA6E69DEA642642799C7E8CF1D7E50D72

Repeal of age restrictions for Traditional IRA Contributions

• Prior Law

  • If attaining age 70.5 by the end of the year, they are not able to contribute to a Traditional IRA

• New Law

  • Removal of the age restriction.  As long as someone has compensation income, they can contribute to a Traditional IRA regardless of age

Required Minimum Distributions began at age 72

• Prior Law

  • RMDs must begin taking RMDs by year end in which a person attains age 70.5

• New Law

  • RMDs must begin RMDs by year end in which a person attains age 72

    • Effective for those who do not reach age 70.5 by 12/31/19

    • Does not impact those already taking RMDs from their account

Penalty free withdrawals from Retirement Plans for birth/adoption

• Prior Law

  • 10% penalty for distribution due to birth/adoption

• New Law

  • Can take up to $5,000 penalty free due to birth/adoption

    • Must be made during 1 year period beginning  on date of birth or date adoption is finalized

  • This is per person, per birth

Limited payout options for non-spousal beneficiaries more than 10 years younger of owner/trust

• Prior Law

  • Non-spousal beneficiaries/Trusts have ability to stretch RMDs out of Inherited account over life expectancy (sometimes referred to as Stretch IRA) or required to take out by end of 5th year following year of death

• New Law

  • Non-spousal beneficiaries who are more than 10 years younger than owner must deplete the entire account by the end of the 10th year following year of death

    • Rules surrounding trusts are not yet clear

    • Applies ONLY to deaths after 12/31/19   

    • For Governmental Plans it only applies to deaths after 12/31/2021.  No guidance yet on what happens if gov’t plan is moved to an Inherited IRA

    • No longer have the ability to do Stretch IRA approach (RMDs over life expectancy)

  • If a child is beneficiary and not age of majority (18 or 21 depending the state), 10 year period begins when age of majority is met. 

    • Bene must take stretch RMD’s between the year following death and then age of majority.  Then 10 year rule kicks in

    • Age of Majority Varies by state.  We cannot confirm the age of majority for a state.

Expanded 529 rules for qualifying distributions

• Prior Law

  • Registered apprenticeships student loan repayments are not considered qualifying costs 

• New Law (Note that State Laws may vary from Federal Laws)

  • 529s would be allowed to cover costs associated with registered apprenticeships as well as homeschooling

  • Up to $10,000 would be allowed for student loan repayments (including those for siblings)

    • This is a lifetime limit. 

    • This is per individual who has a loan

    • Could impact any prior year returns if student loan interest deduction was taken

The following link can be shared with clients: https://www.savingforcollege.com/article/new-law-allows-529-plans-to-repay-student-loans

529 Questions regarding student loans -

https://www.savingforcollege.com/article/new-law-allows-529-plans-to-repay-student-loans

Overview -

The changes to the ‘Stretch’ rules created by the SECURE Act will impact beneficiaries beginning in 2020. However, Congress did carve out a few exceptions to this rule, as follows:

• Plans maintained pursuant to a collective bargaining agreement have an effective of January 1, 2022 (unless the collectively bargained agreement terminates sooner).

• Governmental plans, such as 401(a),403(b),  and 457 plans sponsored by state and local governments, and the Thrift Savings Plan sponsored by the Federal government (and in which Congresspersons, themselves, participate) are not impacted until January 1, 2022

Eligible Designated Beneficiaries Not Subject To The New 10-Year Rule

Notably, while the new general rule under the SECURE Act will be the 10-Year Rule, there are four groups of designated beneficiaries to which the new 10-Year Rule will not apply.

These beneficiaries, referred to as “Eligible Designated Beneficiaries”, are:

• ·        Spousal beneficiaries;

• ·        Disabled (as defined by IRC Section 72(m)(7)) beneficiaries;

• ·        Chronically ill (as defined by IRC Section 7702B(c)(2), with limited exception) beneficiaries;

• ·        Individuals who are not more than 10 years younger than the decedent

·        Certain minor children (of the original retirement account owner), but only until they reach the age of majority. !0 years starts the date they reach age of majority.  Usually 18 or 21 depending on their state

The Special Rule for Minor Children that the 10 year rule doesn’t start until they reach the age of majority applies only to the “child of the employee [or IRA owner] who has not reached majority”. As such, minor children would appear to be ineligible for similar treatment if a retirement account was inherited from a non-parent, such as a grandparent.

Unclear: If prior to reaching the Age of Majority the children would have to take RMDs. I appears  that prior to the age of majority , the minor will have to take “regular” lifetime RMDs until they reach age of majority.  Then the 10 year rule will apply.  The bill is not clear on this