President Trump signed the SECURE Act of 2019 as part of the government’s spending bill and Congress is planning to enact a number of changes that will significantly affect the retirement landscape. The SECURE Act encourages employers to offer retirement plans that were considered too expensive to administer and allows small employers to set up and offer 401(k) plans.
The SECURE Act changes a number of important retirement plan rules. It is over 120 pages and the experts will be reviewing it for some time. Meanwhile, a number of sources have weighed in on what they think are the key provisions. However, last-minute modifications and more detailed analysis may lead to additional changes in the coming weeks.
Th Society for Human Resource Management listed several changes as particularly noteworthy. The act will allow:
- An increase in the business tax credit to make setting up 401(k) plans more affordable for small businesses.
- Unrelated small employers to organize themselves for an “open” 401(k) multiple-employer plan (MEP). This would presumably reduce the costs and administrative work each company would otherwise bear alone.
- Delay of the 401(k) required distribution from the current age of 70 1/2 to 72. Critics point out that only the wealthy are affected by this since they can put substantial assets into a 401(k) and do not need money from the fund immediately.
- Automatic enrollment of safe-harbor 401(k) plans to increase the cap on automatically raising payroll contributions.
- A 401(k) safe harbor for in-plan annuities. This provision has also faced criticism, as many industry experts do not believe annuities are a good value in these situations.
Kiplinger also put together a list of major changes, noting that the act:
- Removes the age restriction for IRAs. If you work into your 70s and beyond, you can still contribute.
- Makes it easier for part-time workers to join their employer’s 401(k) plan.
- Allows a parent to take out up to $5,000 penalty-free from a 401(k) plan for costs connected to a birth or adoption. Kiplinger noted that this may encourage younger workers to start funding retirement plans earlier, as parenthood is on the horizon much sooner than retirement.
- Eliminates the “stretch” provision. Until now, nonspouse IRA beneficiaries could stretch the required distribution of the IRAs over their own lifetimes. Going forward, with a few exceptions, beneficiaries will have to take full disbursement by the end of 10 years. This could mean a lot more of the inheritance going to the government.
Finally, the government will be repealing the controversial Cadillac tax on high-end health plans. This repeal is part of a year-end spending bill.
All these changes will be phased in at different times. There are also exceptions and other subtleties. To help you understand the new rules, contact your accountant or CPA and stay in touch with your financial professionals.