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The SECURE Act (Archived)

The SECURE Act (Archived)

January 17, 2020

What Does It Mean and How Might It Affect You?


Congress recently passed—and the President signed into law—the SECURE Act, landmark legislation that may affect how you plan for retirement. The acronym stands for Setting Every Community Up for Retirement Enhancement (a bit superfluous, but I get it). The law attempts to add options for securing your retirement savings. Many of the provisions went into effect in 2020, which means now is the time to consider how these new rules may affect your tax and retirement-planning situation.

If financial advisers and tax professionals are doing their jobs, they are paying close attention to the effective dates of the various provisions of the SECURE Act. For example, some of the SECURE Act’s provisions became effective prior to 2020 and we have been proactive in addressing these opportunities and challenges as presented.

Read further to learn just some of the SECURE Act’s significant changes that may affect your current retirement and/or estate plans. The changes might provide you and your family with tax-saving opportunities, however, not all changes are favorable. There may be steps you could take to lessen their impact.

Please contact me if you need help in understanding the nuances of the new laws.  We can help tailor a plan of action, work with your other advisers to address a number of situations or simply give you comfort that no immediate action is required. In the end, you will be prepared for what may be coming. Believe me, that might be the best “Act” of all. 

"It’s Your Life…Plan For It."

Eric D. Bailey, CFP®



Setting Every Community Up for Retirement Enhancement Act (SECURE Act)

Selected key provisions affecting individuals:


Repeal of the maximum age for traditional IRA contributions.

Before 2020, traditional IRA contributions were not allowed once the individual attained age 70½. Starting in 2020, the new rules allow an individual of any age to make contributions to an IRA, if the individual has compensation, which generally means earned income from wages or self-employment.


Required minimum distribution age raised from 70½ to 72.

Before 2020, retirement plan participants and IRA owners were generally required to begin taking required minimum distributions, or RMDs, from their plan or IRA by April 1 of the year following the year they reached age 70½. The age 70½ requirement was first applied in the retirement plan context in the early 1960s and, until recently, had not been adjusted to account for increases in life expectancy.

For distributions required to be made after December 31, 2019, for individuals who attain age 70½ after that date, the age at which individuals must begin taking distributions from their retirement plan or IRA is increased from 70½ to 72. In addition, certain individuals working past age 72 may be able to defer RMDs even further.


Partial elimination of stretch IRAs.

For deaths of plan participants or IRA owners occurring before 2020, beneficiaries (both spousal and nonspousal) were generally allowed to stretch out the tax-deferral advantages of the plan or IRA by taking distributions over the beneficiary's life or life expectancy (in the IRA context, this is sometimes referred to as a "stretch IRA").

However, for deaths of plan participants or IRA owners beginning in 2020 (later for some participants in collectively bargained plans and governmental plans), distributions to most nonspouse beneficiaries generally are required to be distributed within ten years following the plan participant's or IRA owner's death. So, for those beneficiaries, the "stretching" strategy is no longer allowed.


Exceptions to the 10-year rule are allowed for distributions to (1) the surviving spouse of the plan participant or IRA owner; (2) a child of the plan participant or IRA owner who has not reached majority; (3) a chronically ill individual; (4) a disabled beneficiary; and (5) any other individual who is not more than ten years younger than the plan participant or IRA owner.

Those beneficiaries who qualify under this exception generally may take their distributions over their life expectancy (as allowed under the rules in effect for deaths occurring before 2020).


Note: This particular provision of the SECURE Act can significantly affect your current retirement plans and planning for beneficiaries of your IRAs and certain qualified plans (e.g., IRC section 401(k)) upon your death.  For individuals who died prior to 2020, the SECURE Act’s impact will be more limited regarding stretch IRAs. 

If your retirement and/or estate plan include designated beneficiaries, other than those enumerated exceptions in the paragraph above, then you need to determine whether your goals and objectives are impacted by the SECURE Act.  For example, if your designated beneficiaries include adult children, a trust, etc., the SECURE Act will affect such beneficiaries’ ability to accomplish a stretch IRA strategy.

While a stretch IRA strategy may be limited under the SECURE Act, there are other strategies that can help extend a beneficiary’s recognition of income. In addition, there are methods to replenish (or replace) the benefits lost, that were available to designated beneficiaries prior to the passage of the SECURE Act.


Expansion of IRC section 529 education savings plans to cover registered apprenticeships and distributions to repay certain student loans.

An IRC section 529 education savings plan (a 529 plan) is a tax-exempt program established and maintained by a state, or one or more eligible educational institutions (public or private). Any person can make nondeductible cash contributions to a 529 plan on behalf of a designated beneficiary. The earnings on the contributions accumulate tax-free. Distributions from a 529 plan are excludable up to the amount of the designated beneficiary's qualified higher education expenses.

Before 2019, qualified higher education expenses didn't include the expenses of registered apprenticeships or student loan repayments.

However, for distributions made after December 31, 2018 (the effective date is retroactive), tax-free distributions from 529 plans can be used to pay for fees, books, supplies, and equipment required for the designated beneficiary's participation in an apprenticeship program. In addition, tax-free distributions (up to $10,000 per beneficiary) are allowed to pay the principal and/or interest on a qualified education loan of the designated beneficiary, or a sibling of the designated beneficiary. Be aware that some states may not follow the federal law changes relating to 529 plans.


Kiddie tax changes for gold star children and others.

In 2017, Congress passed the Tax Cuts and Jobs Act (TCJA), which made changes to the so-called "kiddie tax," which is a tax on the unearned income of certain children. Before enactment of the TCJA, the net unearned income of a child was taxed at the parents' tax rates if the parents' tax rates were higher than the tax rates of the child.

Under the TCJA, for tax years beginning after December 31, 2017, the taxable income of a child attributable to net unearned income is taxed according to the brackets applicable to trusts and estates. Children to whom the kiddie tax rules apply and who have net unearned income also have a reduced exemption amount under the alternative minimum tax (AMT) rules.

There had been concern that the TCJA changes unfairly increased the tax on certain children, including those who were receiving government payments (i.e., unearned income) because they were survivors of deceased military personnel ("gold star children"), first responders, and emergency medical workers.

The new rules enacted on December 20, 2019, repeal the kiddie tax measures that were added by the TCJA. So, starting in 2020 (with the option to start retroactively in 2018 and/or 2019), the unearned income of children is taxed under the pre-TCJA rules, and not at trust/estate rates. Additionally, starting retroactively in 2018, the new rules also eliminate the reduced AMT exemption amount for children to whom the kiddie tax rules apply and who have net unearned income.


Penalty-free retirement plan withdrawals for expenses related to the birth or adoption of a child.

Generally, a distribution from a retirement plan must be included in income. Unless an exception applies (for example, distributions in case of financial hardship), a distribution before the age of 59½ is subject to a 10% early withdrawal penalty on the amount includible in income.

Starting in 2020, plan distributions (up to $5,000) that are used to pay for expenses related to the birth or adoption of a child are penalty-free. That $5,000 amount applies on an individual basis, so for a married couple, each spouse may receive a penalty-free distribution up to $5,000 for a qualified birth or adoption.


Taxable non-tuition fellowship and stipend payments are treated as compensation for IRA purposes.

Before 2020, stipends and non-tuition fellowship payments received by graduate and postdoctoral students were not treated as compensation for IRA contribution purposes, and so could not be used as the basis for making IRA contributions.

Starting in 2020, the new rules remove that obstacle by permitting taxable non-tuition fellowship and stipend payments to be treated as compensation for IRA contribution purposes. This change will enable these students to begin saving for retirement without delay.






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