The SECURE Act: Big Changes to Retirement Accounts

The President signed the SECURE Act into law on December 21, 2019. The Setting Every Community Up for Retirement Enhancement Act (SECURE) make sweeping changes to retirement planning. The goal of the SECURE Act is to 1) make it easier for individuals to save for retirement and 2) encourage businesses to offer retirement plans.

The largest changes are outlined below:

1.      Required minimum distribution age has been changed from 70 ½ to 72.

2.      The maximum age for contributing to a traditional IRA has been removed where it was previously 70 ½.

3.      Individuals can now use money from a 529 account to pay off student loan debt. There is a limit of $10,000 for each beneficiary on the account and $10,000 for each sibling of the account beneficiary.

4.      Inherited IRAs must now be distributed completely by the 10th year following the year of death of the beneficiary. This is significant because previous beneficiaries could stretch out distributions over their lifetime allowing for tax free growth. Some estimate this may generate $16 Billion for the Treasury. There are exceptions for “eligible beneficiaries.” Eligible beneficiaries consist of minors, the spouse of the account owner, disabled or chronically ill beneficiaries, or a beneficiary not ten years younger than the account owner. 

5.      Individuals can take out $5,000 before the age of 59 ½ without penalty for childbirth or adoption expenses.

More time is needed to adequately access the full impact of the SECURE Act but those individuals that planned on using a trust to manage a retirement account for a beneficiary may have to reassess their estate plan.