10 Jan The SECURE ACT
The “Setting Every Community Up for Retirement Enhancement” Act (THE SECURE ACT) can be considered one of the most significant changes to retirement plans in nearly a decade. Highlights of the bill are the following:
Selected Highlights of the SECURE Act:
• Required Minimum Distribution Relief for Retirement Plans: For people who have not turned 70 1/2 by December 31, 2019, the RMD start date is pushed back to age 72.
• Auto-Enrollment 401(k) Plans Enhanced: Automatic enrollment boosts overall participation. The SECURE Act makes it easier for small businesses to set up 401(k)s by increasing the cap under which they can automatically enroll workers in “safe harbor” retirement plans, from 10% of wages to 15%.
• Help for Small Businesses Offering Retirement Plans: (1) The new law increases the tax credit available for 50% of a small business’ retirement plan start-up costs. Before the SECURE Act, the credit was limited to $500 per year. Now, the maximum credit is up to $5,000. (2) The SECURE Act provides a maximum tax credit of $500 per year to employers who create a 401(k) or SIMPLE IRA plan with automatic enrollment. (3) The SECURE Act makes it easier for small businesses to join together to provide retirement plan opportunities by allowing completely unrelated employers to participate in a multiple-employer plan and have a “pooled plan provider” administer it.
• 401(k) for Part-Time Employees: Businesses are able to sign up part-time employees who work either 1,000 hours throughout the year or have three consecutive years with 500 hours of service.
• No Age Restrictions on IRA Contributions: Repeal of the rule that prohibited contributions to a traditional IRA by taxpayers aged 70 1/2 and older.
• Penalty-Free Withdrawals for Birth or Adoption of Child: If you have a 401(k), IRA or other retirement account, the new law lets you take out up to $5,000 following the birth or adoption of a child without paying the usual 10% early-withdrawal penalty.
• Annuity Information and Options Expanded: Rather than reviewing only your account balance, 401(k) administrators are required to provide annual “lifetime income disclosure statements” which can help you plan how long your money will last.
• Expansion of 529 Plans: Costs associated with homeschooling and vocational training are covered.
• No More Stretch IRAs: Required minimum distributions have changed for non-spousal account inheritors. Rather than withdraw RMDs over the span of their lives, these beneficiaries must withdraw all assets of an inherited account within 10 years. There are no required minimum distributions within those 10 years, but the entire balance must be taken after the 10th year.
• Promoted Use of Lifetime Income Products by 401(k) Plans: Savers are encouraged to convert retirement account balances to regular, lifelong income. Plan administrators can help retirees move their savings into investment vehicles that will pay them out for a longer period of time.
• Repeal of the TCJA Changes to the Kiddie Tax Rules: Under the TCJA, a child’s unearned income is taxed at estate and trust income tax rates. An unintended consequence was to create higher tax liabilities for low and middle-income families who received certain benefits that are considered unearned income. The SECURE Act returned a child’s net unearned income to be taxed at the parent’s tax rate if higher than the tax rate of the child. This change is effective for tax years that begin after December 31, 2019, however, taxpayers may elect to have the change apply retroactively to the 2018 and/or 2019 tax years. An amended return must be filed to claim a refund of the excess tax.
• The mortgage insurance premium deduction is back on Schedule A, resurrected for 2018 and extended through 2020
• The old floor of 7.5% has returned to the medical expense deduction, extended through 2020
• The qualified tuition and related expenses deduction allowed as an above-the-line deduction, without having to itemize, resurrected for 2018 and extended through 2020
• Discharge of certain qualified principal residence indebtedness is excluded from gross income, resurrected for 2018 and extended through 2020
• Various tax credits for energy-efficient home improvements, and “green” vehicles (fuel cell vehicles, plug-in motorcycles, alternative fuel vehicle refueling equipment), resurrected for 2018 and extended through 2020
To read The SECURE ACT, please Click here.