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Retirement Plan Changes for 2020 – Are You Feeling Secure?

 

By Jeffrey Silverberg, CironeFriedberg, LLP

President Trump signed the Setting Every Community Up for Retirement Enhancement (“SECURE Act”) on December 20, 2019. These changes were effective January 1, 2020. The more significant changes made by the SECURE Act include the following:

  • Eliminates the age limit of 70½ for contributing to traditional IRAs. Under prior law, only contributions to Roth IRAs and 401(k)s had no age limit if you are still employed and had less than a 5% ownership in a company.
     
  • Elimination of the “stretch IRA” in calculating required minimum distributions (RMD) made to non-spouse beneficiaries for individuals that die after 2019. Under prior law non-spouse beneficiaries could establish an inherited IRA account and receive distributions over their life expectancy. Under the new law, RMDs are suspended in years 1-9. However, the entire remaining balance of the inherited IRA must be distributed in year 10 after an account owner passes away. If the inherited IRA is not owned by a trust, the beneficiary has the option to request distributions at any time. However, inherited IRAs held in trust could have restrictions on funds depending on the existing trust language. Some trust documents may limit beneficiary distributions to the RMD amount. Accordingly, distributions might not be allowed until year 10 in some circumstances. IRAs inherited by a spouse are not subject to this new rule.
     
  • Increases the age from 70½ to age 72 for individuals starting their RMD. The increase in age to 72 applies to individuals who have not attained age 70½ by December 31, 2019.
     
  • Requires employers to offer eligibility to employees to participate in an existing 401(k) plan if they work at least 500 hours for three consecutive years of service or a one-year service requirement of 1,000 hours.
     
  • Provides a safe harbor for plan sponsors in the selection of an annuity provider. Few plans offer annuities in part because of liability concerns in choosing a provider. The new rules would ease concerns and offer participants an income stream in retirement.

Please contact one of our representatives if you have any questions about the SECURE Act.

 
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