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SECURE Act: Setting Every Community Up for Retirement Enhancement

On December 20, 2019, the SECURE (Setting Every Community Up for Retirement Enhancement) Act was signed into law.  The legislation contained many new laws.  Here are a few items that may impact you:

Required Minimum Distributions (RMDs)

The new age to begin required minimum distributions (IRAs, SEPs, and 401k) is 72 beginning January 1, 2020.  Prior to this law, RMDs began at age 70 ½.  A taxpayer attaining age 70 ½ prior to December 31, 2019, must begin taking required minimum distributions under the old rules.  There are no required minimum distributions on a Roth IRA.

Important: The SECURE Act retains a key exception to the RMD rules: People who still work as employees after reaching the RMD age and don't own over 5% of the entities that employ them can postpone taking RMDs from their employers' plans until after retirement

Elimination of the Stretch IRA

Beneficiaries of an inherited qualified retirement account must take all the money out of the account within 10 years after the account owner’s death.  It does not have to be taken equally over the 10 years.  It can all be taken out in the tenth year, if the beneficiary chooses.  This new rule only applies to accounts where the owner passes away after December 31, 2019.  Accounts inherited before December 31, 2019 are grandfathered under the old rules. 

Of course, there are some exceptions to the new 10-year rule.  Spouses are the first exception.  A qualified retirement account inherited from a spouse does not have to be cleaned out within 10 years.  An account inherited by a spouse will follow the old rules. 

A minor child of a deceased owner is the second exception.  A minor child can take RMDs based on their own life expectancy until they reach age 18.  Once the child reaches age 18, then the account must be emptied within 10 years after reaching age 18. 

The next exception is when the account is inherited by someone who is less than 10 years younger than the deceased.  In this case, then beneficiary can take the RMDs based on their own life expectancy. 

The last exception is a beneficiary who is chronically ill.  In this case, the chronically ill beneficiary can take RMDs based on their life expectancy. 

No age restrictions for IRA contributions

Taxpayers of any age can now make IRA contributions to the extent that they have earned income.  Under the old rules, a taxpayer could not make a traditional IRA contribution past the age of 70 ½.  However, taxpayers must reduce their exclusion by the amount of IRA contributions made in that year. 

Important: Be aware that any deductible IRA contributions made for the year you reach age 70½ and later years can reduce your annual qualified charitable distribution (QCD) allowance. After reaching age 70½, you can make qualified charitable contributions of up to $100,000 per year directly from your IRA(s).

Part time workers eligible to participate in retirement plan

Part time workers, over the age of 21, who work at least 500 hours per year for three consecutive years are eligible to participate in their employer’s qualified retirement plan.

Penalty free withdrawals for new parents

The SECURE Act provides an exemption from the 10% penalty for distributions up to $5,000 in the 1 year following a qualified birth or adoption.  Note this is only a relief from the early penalty withdrawal.  Income tax would still be due on the distribution. 

Expansion of 529 Plan

Under the new law, state sponsored 529 plans can now be used for registered apprenticeship program fees, books, supplies and equipment.  Funds from a 529 plan can also be used to repay up to $10,000 of student loans.  Note this is $10,000 total, not $10,000 annually.  If 529 plans are used to repay student loans, then the deduction for student loan interest must be reduced by the amount of 529 distribution used to pay down these loans.  These changes apply to distributions made after December 31, 2018.

Kiddie Tax

Prior to the Tax Cuts and Jobs Act (TCJA), a child’s unearned in come was taxed at the parent’s tax rate.  TJCA changed that and began taxing a child’s unearned income at the rates used by trusts and estates.  The SECURE Act strikes the TJCA change and now taxes a child’s unearned income at the parent’s rates once again.  For 2018 and 2019, the taxpayer can choose which set of rates to use. 

The kiddie tax repeal provision is generally effective for tax years beginning after 2019. But you also can choose to apply the repeal provision to tax years that began in 2018 and/or 2019. Consult your tax advisor to determine whether 1) to file amended 2018 returns for affected children and young adults, and 2) to factor this change into their 2019 returns.

Tip of the Iceberg

The SECURE Act includes a lot of important tax changes, including highly technical changes that are beyond the scope of this article and some that affect employers that offer retirement benefits. If you want more information about the SECURE Act changes and how they might affect you, consult your tax advisor.


Melissa J. Wolf, CPA, CVA, Senior Manager, Tax Division

Melissa joined Baden Gage & Schroeder in 2012 with over 7 years of professional experience. She specializes in estate, trust and gift tax consulting services and manages tax engagements for clients with personal income, fiduciary income tax and gift tax service needs. She also has experience with Indiana personal property, foreign bank account reporting and IC-DISC compliance.

Melissa is a graduate of Indiana University. She is a member of the American Institute of Certified Public Accountants and the Indiana CPA Society. Melissa is involved in the Fort Wayne Estate Planning Council. Contact Melissa at mwolf@badencpa.com.


Melissa Wolf | 01/22/2020