On December 20, 2019, the President signed into law the Secure Act.  This article will focus on the key provisions of the new Act.

The new Act changes the beginning age for taking required minimum distributions to age 72.  The new law applies to account owners who turn 70½ after the year 2019.  The new Act also repeals the prohibition on contributions to a traditional IRA by an individual who has attained the age of 70½Owners of traditional IRA’s can now make contributions past the age of 70½. secure act

The new Act also allows taxpayers to withdraw up to $5,000 (per spouse) from a qualified retirement plan, a section 403(b) plan, a governmental section 457(b) plan, and IRAs, without penalty to pay expenses in regard to the birth or adoption of a child.  The distributions must occur during the one year period beginning on the date that the child of the taxpayer was born or the legal adoption was finalized.  Pension and other defined benefit plans are not included.

The Secure Act also changes the payout rules for defined contribution plans and IRAs.  The old law allowed for distributions to begin within one year of the owner’s death and could be paid over the life or life expectancy of the beneficiary.  The new law generally requires that the balance remaining in the retirement account be distributed to the designated beneficiaries within ten years of the date of death.  The rule applies regardless of if the owner dies before or after the beginning of the RMDs.  The new rule is not applied to surviving spouses, chronically ill or disabled beneficiaries, minor children up to the age of majority, and individuals not more than ten years younger than the owner of the IRA.  Persons falling in the above exception can elect to have distributions paid over the life or life expectancy of the beneficiary beginning in the year following the year of death.  In regard to the surviving spouse, the prior law applies which allows the surviving spouse to delay distributions until the end of the year that the employee or owner of the account would have turned 70½.  If the surviving spouse dies before the owner would have turned 70½, the surviving spouse is treated as the employee or owner in determining the required distributions to the surviving spouse’s beneficiaries.

The Secure Act also expands 529 Plans to cover apprenticeship programs. Also, the Secure Act  allows participants to 529 Plans to distribute funds to make payments on qualified education loans.  However, no individual may receive more than $10,000 of such distributions over the course of a lifetime.

The Secure Act also changed the “kiddie tax” rules.  Under the new rules, a child’s earned income and unearned income will be taxed at the rate of the parents.

There are many unanswered questions regarding the application of the new Act, which I am hoping will be clarified when the IRS issues guidance on the matters.

If you have question about the Secure Act, please reach out to us through the “Contact Us” page within our Web site or call 515-225-1100 today.