6 Ways Retail Wealth Management Will Change Under the SECURE Act

Congress gave the financial industry a gift just before the holiday season in the form of the Setting Every Community Up for Retirement Enhancement Act of 2019, better known as the SECURE Act, which was signed into law on December 20th by President Donald Trump. Below are some key provisions of the act.

1. The Act pushes back the age that triggers the need to take required minimum distributions (RMDs) from 401(k) plans and traditional IRAs from 70½ to 72. If you work past age 72, RMDs from your current employer’s 401(k) aren’t required until after you leave your job, unless you own at least 5% of the company. Qualified Charitable Distributions are still allowed at 70½.

2. The Act lifts the restriction on making contributions to a traditional IRA after age 70½.

3. The Act allows you to take out up to $5,000 from a retirement account following the birth or adoption of a child without paying the usual 10% early-withdrawal penalty. If you are married, you AND your spouse can both withdraw $5,000 from your own accounts, penalty-free. You have one year from the date of birth of the child or the date the adoption is finalized to withdraw the funds without paying the 10% penalty.

4. The Act allows you to use up to $10,000 from your 529 college savings plan to repay your qualified education loans. This $10,000 limit applies over the lifetime of the plan’s beneficiary. Be careful, as some states may treat this as an unqualified withdrawal subject to taxes and penalties depending on each state’s interpretation. It appears most states are still having lawyers deliberate over this change.

5. The SECURE Act repeals the change to Kiddie Tax that the Tax Cuts and Jobs Act of 2017 brought us. Starting in 2018, the Kiddie Tax was based on the much higher tax rates for estates and trusts, which increased the taxes rates that apply to the taxable portion of college grants, scholarships, and fellowships along with military survivor benefits of Gold Star families. This led to some shocking tax bills for filers this past April. The SECURE Act allows taxpayers to elect to have the change apply retroactively to the 2018 (through amending) and/or 2019 tax years.

6. The Act limits the ability of certain beneficiaries to stretch minimum distributions, providing that if a participant in an IRA or Roth IRA dies before the participant’s entire account balance is distributed, distributions to a beneficiary who is not an eligible designated beneficiary must generally be completed within 10 years after the participant’s death. Distributions to an eligible designated beneficiary (i.e., a spouse) continue to be payable over the life of the eligible designated beneficiary. These changes apply to distributions for employees who die after Dec. 31, 2019.