Significant Changes To Retirement Legislation
On December 20, 2019, President Donald J. Trump signed into law H.R. 1865, the “Further Consolidated Appropriations Act of 2020”. This legislation primarily authorized appropriations to fund the operation of certain agencies within the federal government through September 30, 2020 – but is also included “Division O” which laid the foundation for the “Setting Every Community Up for Retirement Enhancement” Act of 2019 (also known as the “SECURE Act”).
Highlights of The SECURE Act legislation include:
- Raising the age for Required Minimum Distributions (RMD’s) from 70 ½ to 72 for those individuals who reach 70 ½ after December 31, 2019. For those that reached 70 ½ prior to enactment of this legislation – there is no change. They must continue to take their annual required minimum distributions in accordance with the laws that existed prior to the SECURE Act.
- Removing the previous age limitations allowing one to contribute to a traditional IRA in the year they reach 70 ½ and thereafter.
- Eliminating the “stretch provisions” for inherited retirement accounts and requiring beneficiaries to take distributions within ten (10) years of the account owner’s death. Exceptions exist for surviving spouses, minors, chronically ill/disabled individuals, and beneficiaries not more than ten (10) year younger than the account owner.
- Eliminating the 10% penalty on distributions from “qualified plans” and IRA’s before 59 ½ for each qualified birth or adoption. Allows for distributions up to $5,000 for expenses related to each qualified birth and/or adoption made within the 1 year period following the birth of a child or on the date the adoption is finalized.
- Brings back the “kiddie tax” that was repealed under the Tax Cut & Jobs Act resulting in the unearned income of children be tax at the top marginal rate of their parents.
- Redefines “Qualified Higher Education Expenses” under Section 529 plan distributions to include costs associated with apprenticeships and up to $10,000 (principal + interest) of qualified student loan repayments without generating income tax.
- Enabling employees with 500 hours of service in 3 consecutive years to participate in employer sponsored defined contribution plans.
- Increasing the maximum tax credit available to employers that set up retirement plans to $16,500 over three years. To be eligible, an employer has to make 20 non-highly compensated employees eligible for the new retirement plan.
Contact your Alloy Silverstein advisor with any questions, concerns, or to set up a financial planning meeting in 2020.
