Making Your Money Last

SECURE Act Basics: What Everyone Should Know

The rules on retirement have recently been rewritten. Here are the biggest changes and how they could affect you.

The SECURE Act, which was officially enacted on Jan. 1, 2020, is now the largest retirement reform to impact the economy since the Pension Protection Act of 2006.

The official title of the bill is "Setting Every Community Up for Retirement Enhancement,” which deemed the moniker SECURE. The bill itself is the product of a bipartisan effort to make retirement savings more accessible for less-advantaged people.

Only three of the 420 votes cast opposed the act, which further highlights the concerning state of retirement savings in the U.S. This bill was passed at an interesting time, considering the current retirement situation, in which pension systems are collapsing and Social Security is bordering on insolvency.

There are 29 new provisions in total, each important in its own right. However, there are some aspects of the new law that prove more notable than others. Here are the most significant provisions majorly affecting many Americans’ retirement plans.

What About Required Minimum Distributions (RMDs)?

Prior to the SECURE ACT, the government required individuals with either a defined contribution or defined benefit plan to begin taking distributions no later than April 1 of the year after they turn 70½. The SECURE Act raises that age to 72. The new age limit does not apply to individuals who turned 70½ prior to the end of 2019. (For more specifics, see RMDs: When Do I Have to Take One?)

Changes in IRA Contributions

Beginning in 2020, individuals are now allowed to continue making contributions to their IRAs with no matter what their age, as long as they have earned income. Previously contributions were barred after the age of 70½.

Qualified Charitable Contributions

The SECURE Act still allows individuals to make a $100,000 annual qualified charitable distribution from an IRA account at age 70½. However, because individuals are still allowed to contribute to IRAs after age 70½, the annual qualified distribution is reduced by the aggregate amount equal to contributions made to an IRA after age 70½.

The 10-Year Distribution Rule

A major change that will come as a result of the SECURE Act is the 10-year distribution rule. This new rule requires most non-spousal beneficiaries of retirement plans after Jan. 1, 2020, to distribute the entire inherited account within 10 years of the account owner’s passing. This 10-year rule applies both to traditional IRAs and to Roth IRAs as well.

Exceptions to the 10-year distribution rule:

  • Surviving spouse
  • A minor child (10-year rule applies once the minor reaches the age of majority)
  • A disabled individual
  • A chronically ill individual
  • An individual who is not more than 10 years younger than the deceased participant or IRA owner

Prior to this law, beneficiaries could take minimum distributions based on their own life expectancy. For many, this was a tax advantage. With an individual retirement account (IRA), this was commonly referred to as a “stretch IRA” strategy, and the beneficiaries could stretch the amount of time these accounts stayed open, simultaneously reaping the tax benefits in the process.

The new rule could potentially push beneficiaries into a higher tax bracket and will call for both account holders and beneficiaries to reconsider their current estate plans.

Additional Changes to Defined Contribution Plans

IRAs are one of the most common examples of defined contribution plans. As with 401(k)s, these plans will experience significant changes under the new law.

The SECURE Act mandates that investment providers issue estimates of potential monthly earnings a retiree could receive if either a joint, survivor or single-life annuity were purchased.

Congress has placed the burden of labor for these estimates solely on the shoulders of the plan provider, who must make them available at least every 12 months, regardless of whether the plan provides any such annuity options.

Fortunately for plan providers, Congress has ordered the Department of Labor (DOL) to produce a "safe harbor" model to ensure ease of compliance with the new law. Moreover, these requirements are not fully codified by law until one year after the DOL has published each of the interim final rules, model disclosures and specified assumptions.

What About My 401(k)?

As the gig economy continues to grow and outsourced work becomes the new norm, Congress has been clamoring for an approach to enable employer-sponsored savings plans for non-employee contractors. The SECURE Act makes it possible to do just that.

The act requires that all part-time employees who have worked at least 500 hours for the past three year-to-date periods of their employment be eligible to enroll in 401(k) plans in workplaces that offer them.

In order to prevent this new regulation from causing employers to avoid hiring part-time employees, the law includes no requirement for employer matches or other employer contributions to the plan. The law also includes special guidelines for top-heavy testing to avoid any issues with HR's nondiscrimination testing.

Stay Secure with the SECURE Changes

These alterations to existing law are only a handful of the 29 new provisions of the SECURE Act. With so many changes coming to your retirement planning, it can be difficult to know which way is up. However, keeping yourself educated, being proactive and understanding the aspects of the new SECURE law that will most impact you and your family can help keep your retirement plans safe.

This is for informational and educational purposes only and should not be construed as investment advice or an offer or solicitation of any products or services. Opinions are subject to change with market conditions. The views and strategies may not be suitable for all investors and are not intended to be relied on for legal or tax advice. Please note that any investment involves risk including loss of principal.

This is piece was written strictly to provide a summary of the Secure Act and not to be used as a substitute of the Secure Act Articles that have been enacted into law. Please refer to Congress.gov for a complete explanation.

Advisory services offered through National Asset Management, an SEC registered investment advisor.

About the Author

Ephie Coumanakos

Managing Partner, Concord Financial Group

Ephie Coumanakos is the co-founder and managing partner of Concord Financial Group and a graduate of The Wharton School of The University of Pennsylvania. She specializes in the areas of retirement and pre-retirement planning, asset preservation, wealth management and estate planning. Ephie frequently appears as a speaker at financial workshops in the areas of retirement and estate planning, asset preservation strategies and tax management.

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