Important Changes for Individual and Employer (Including Small Business) Sponsored Retirement Plans
The SECURE Act* — which stands for “Setting Every Community Up for Retirement Enhancement” — including several provisions intended to strengthen retirement planning and retirement security took effect January 1, 2020.
Below are some of the changes that might have the greatest impact on your individual and employer sponsored retirement plans and, if you are a small business owner, on your plan options and tax credits.
♦ A Required Minimum Distribution (RMD) – the age you are required to take an RMD from your retirement accounts {apart from Roth IRA, Roth 401k and Roth 403(b)} has increased from 701/2 to 72 for individuals who were 70 on January 1 of this year. If you reached 70½ in 2019, you still must take a distribution for 2019 and 2020.
♦ The lifetime “stretch” provision has been eliminated - Previously, many beneficiaries were able to spread distributions and defer taxes on most nonspouse-inherited IRAs and retirement accounts over their lifetime. Beneficiaries who are not a former spouse, minor child, have disabilities, are chronically ill or less than 10 years younger than the decedent must withdraw all assets with in 10 years. There is no change to the distribution schedule if the original owner of the plan died before January 1.
♦ 401(k) plans increased the limit on auto-enrollment into the plan from 10% to 15% of income and enabling long-term part-time employees to participate.
♦ Retirement plan conversion to a lifetime annuity – The SECURE Act makes it easier for plan sponsors to offer annuities inside qualified plans subject to ERISA’s fiduciaries requirements (e.g., 401k, 403b, SIMPLE IRA).
♦ Lifetime income disclosure for define contributions plans – Employers are required to disclose to employees the amount of sustainable monthly income their balance could support in in their 401(k) statements.
♦ Increase small employer access to retirement plans– The SECURE Act expends the ability for small businesses to offer multiple employer plans. It also allows small business owners to join other employers to set up and offer 401k plans with fewer liability concerns and less cost.
♦ An increase in the tax credit for small businesses that establish a retirement plan and a new credit for small businesses who adopt an auto-enrollment provision.
♦ The allowance for a penalty-free distribution of retirement funds of up to $5,000 for a qualified birth or adoption
I will be busy in months ahead as I re-evaluate plans for my clients impacted by the Secure Act and help them plan for their retirements for years to come. If you are not my client but have questions or need help, please don’t hesitate to reach out.
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* The Secure Act of 2019