SECURE Act Encourages Saving for Retirement

SECURE Act Promotes IRAs to Testamentary Unitrust Plans 

By a bipartisan vote of 71 to 23 on December 19, 2019, the Senate passed the Setting Every Community Up for Retirement Enhancement (SECURE) Act. The SECURE Act was part of a larger appropriations bill.

Both House Ways and Means Chairman Richard Neal (D-MA) and Ranking Member Kevin Brady (R-TX) supported the bill. Brady noted, “Our bipartisan legislation makes it easier for main street business to offer retirement plans to their workers by easing administrative burdens, cutting down on unnecessary and often costly paperwork. In this bill, we also offer local businesses the flexibility to tailor retirement plans to best fit the needs of their workers, not to the needs of Washington.”

The bill includes many provisions designed to facilitate and enhance savings for retirement. These changes have bipartisan support and are helpful for workers who desire to save for retirement.

  1. Traditional IRA Contributions – Individuals over age 70½ with earned income may continue to make contributions each year. Previously, only Roth IRAs could be funded after age 70½. All IRAs may now be funded at any age, provided you have earned income. These traditional IRA contributions may enable seniors to grow retirement accounts during their 70’s and 80’s.
  2. Required Minimum Distribution (RMD) Age – For individuals who turn 70½ after December 31, 2019, the RMD age of 70½ is increased to age 72. Those who reached age 70½ during 2019 must still start their RMDs under the previous law. The increased age RMD rule will benefit many IRA owners who do not need to withdraw distributions. Because the IRA balances will be larger with one or two years of added growth, RMDs at age 72 and future years will be larger. Many loyal donors may choose to increase their IRA rollover gifts after age 72.
  3. Part Time Workers – Those individuals who work at least 500 hours per year for three years will be able to participate in qualified retirement plans.
  4. Retirement Plan Annuities – The rules are generally expanded to permit more qualified retirement plans to offer annuity payout options. Section 204 of the Act generally limits the liability of employers who offer annuity options in their retirement plans. This employer protection is likely to increase the number of annuity options in many larger retirement plans.
  5. Retirement Benefit Disclosure – Retirement plan administrators are now required to offer an expanded disclosure of future retirement benefits to participants. These disclosures are intended to help employees better understand the benefits of maximizing their contributions to the retirement plans.
  6. Stretch Distribution Reduced – Inherited IRAs for nonspouse beneficiaries will no longer be distributed over life expectancy, but IRA and other qualified plans of decedents must be paid out over a maximum term of ten years. There are exceptions for recipients with disabilities, minors and individuals who are within ten years of the age of the IRA owner.
  7. IRA Rollover Limit Potentially Reduced – If an individual makes contributions to a traditional IRA after age 70½, the $100,000 per year qualified charitable distribution (QCD) limit is reduced by the amount of IRA contributions after that age. The IRA contribution amount is cumulative and specific calculations will eventually be published in IRS Regulations. QCD gifts in excess of post age 70½ traditional IRA cumulative contributions will be included in income and deductible if the individual itemizes deductions. It is probable that most donors either will not have earned income after age 70½, will have total income over the IRA phaseout limits (and may not fund an IRA) or may choose to make Roth IRA contributions.

Provisions of the SECURE Act generally take effect on January 1, 2020. While the age for RMDs from IRAs increases to 72, the qualified charitable distribution (QCD) age remains at 70½. IRA owners over age 70½ may transfer up to $100,000 each year to qualified charities. This transfer may fulfill part or all of an RMD.


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