Highlight: SECURE Act

April 23, 2020

The Setting Every Community Up for Retirement Enhancement (SECURE) Act was signed into law on December 20, 2019 and will have wide reaching effects on retirement and estate planning for many people.  The goals of the SECURE Act were to encourage 1) employers to sponsor retirement plans for their employees and 2) individuals to save more for retirement.  Here are some highlights of the SECURE Act:


  • Eliminates Age Limit on IRA Contributions

    Before the Act, the IRA rules prohibited individuals from contributing to a Traditional IRA for the year they reached 70 ½ and subsequent years.

    After the Act, there is no longer an age limit on Traditional IRA contribution eligibility.  Individuals can continue to contribute to Traditional IRAs so long as they have earned income to support the contribution.  For example, for 2020, IRA owners over age 50 may contribute up to $7,000 to their IRAs so long as they have $7,000 of earned income.  If an IRA owner does not also participate in an employer-sponsored retirement plan, they will likely be able to deduct their Traditional IRA contributions.

  • Increases Required Minimum Distribution (RMD) Age

    Before the Act, IRA owners had to begin taking a required minimum distribution (RMD) from their Traditional, SEP and SIMPLE IRAs for the year they turned ag 70 ½.  The deadline to take the RMD for the 70 ½ year was April 1 following the 70 ½ year.

    After the Act, IRA owners are required to begin taking RMDs by April 1 following the year they reach age 72.  This is effective for anyone who had not reached age 70 ½ by December 31, 2019.  This means that anyone who did not reach age 70 by June 30, 2019 may wait until age 72 to begin taking RMDs from their IRAs.  Those who had reached age 70 ½ by the end of 2019 must continue taking RMDs.

    Note one of the provisions of the Coronavirus Aid, Relief and Economic Security (CARES) Act that was signed into law on March 27, 2020 waived RMDs for 2020.

  • Ten-Year Rule on Inherited IRAs or 401(k)s

    Before the Act, depending on the beneficiary’s relationship to the IRA owner and the IRA owner’s age at death, a beneficiary may have had some or all of the following payment options available:

    • Five-Year Rule – take payments of any amount on any date as long as the IRA is depleted by the end of the fifth year following the IRA owner’s death.
    • Life Expectancy Payments – take a minimum annual payment until the IRA is depleted.
    • Transfer or Rollover to Own IRA—move inherited IRA assets to spouse’s own IRA or employer plan.

    After the Act, the time frame that most beneficiaries will have to take out IRA inheritances will change from life expectancy to ten years, meaning full liquidation no later than December 31 of the tenth year following the year of the owner’s death. This new IRA inheritance rule eliminates the “stretch” IRA as we know it.

    However, there are exceptions to the new ten-year rule. The following types of beneficiaries, will still be able to use life expectancy to take out beneficiary RMDs instead of following the ten-year rule:

    Spouses — The spousal inheritance rules have not changed.  Spouses will still be able to re-register the IRA into their own name or leave the IRA in the name of the deceased spouse and take out RMDs using their life expectancy.

    Minor children — A minor child may commence the payout using his/her life expectancy; however, once the age of majority is attained, as determined by state law, it reverts to December 31of the tenth year following the date of majority to liquidate the IRA.

    Disability — Any beneficiary, regardless of age, who is “disabled” within the definition provided in I.R.C. Sec. 72(m)(7) will be able to utilize their life expectancy to take RMDs.  An individual will be considered “disabled” under Sec. 72(m)(7) “if he/she is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or to be of long continued and indefinite duration.”

    Chronic illness — Any beneficiary, regardless of age, who is “chronically ill” as defined by I.R.C. Sec. 7702B(c)(2) will be able to utilize their life expectancy to take RMDs. An individual will be considered “chronically ill” under Sec. 7702B(c)(2) if he/she is unable to perform at least two of six activities of daily living without assistance for ninety days or if he/she requires substantial supervision to ensure such individual’s safety from threats to their health and safety due to severe cognitive impairment.

    Beneficiary who is not more than ten years younger than deceased — A non-spouse individual beneficiary who is younger than the plan participant or IRA owner, but not more than ten years younger, will be able to use their life expectancy to take out RMDs, instead of using the ten-year rule. Presumably, this exception is in place to consider support relationships between similarly aged family members like siblings.


  • Increases Tax Credits For Plan Start-Up Expenses

    Before the Act, small employers could take a tax credit for qualified start-up costs for establishing a SEP plan, SIMPLE IRA plan or qualified retirement plan. To be eligible, an employer must have 100 or fewer employees earning at least $5,000 per year. The plan must include at least one rank-and-file employee, and the employer cannot have maintained a qualified retirement plan during the three years preceding the first credit year. The tax credit was equal to 50% of the qualified start-up costs up to $1,000 for up to three years (i.e., up to $500 per year for three years).

    After the Act, the eligibility requirements for small businesses to take a tax credit for plan start-up costs remain the same, but the amount of credit available is significantly increased. A small employer may take a tax credit between $500 – $5,000 per year for three years. The credit is now calculated as 50% of plan start-up costs up to the lesser of a) $5,000 or b) $250 multiplied by the number of non-highly compensated employees eligible to participate in the plan (but at least $500).

  • Adds New Tax Credit For Automatic Enrollment

    Before the Act, there was no tax credit available to employers who added an automatic enrollment feature to their retirement plan.

    After the Act, small businesses that add automatic enrollment to a new or existing 401(k) or SIMPLE IRA plan may claim a $500 per year tax credit for up to the first three years the automatic enrollment provision is in effect.

This memorandum relates to general information only and does not constitute legal or tax advice. Facts and circumstances vary. We make no undertaking to advise recipients of any legal changes or developments.


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