7 Important Sections of the SECURE Act

Anytime changes happen in legislation you should understand how it will impact your financial plan and make adjustments accordingly.

Change is Constant

The SECURE Act known as Setting Every Community Up For Retirement Enhancement Act of 2019 was passed by the House in May and approved by the Senate on December 19th, 2019.

In 2017 we saw the Tax Cuts Jobs Act, and next up we are seeing more retirement planning evolution with the SECURE Act. Change is happening rapidly in the retirement world, and you don't want to be left behind!

What You Need To Know

Below I have outlined important sections that may be applicable to the average American. I've offered a brief explanation of each section as well. This by no means covers all the changes of the act.

Link: The SECURE Act brief

Link: The SECURE Act in detail - Download 104 Pages

Section 106: Repeals The Max-Age to Contribute to IRA

"...repeals the prohibition on contributions to a traditional IRA by an individual who has attained age 70½. As Americans live longer, an increasing number continue employment beyond traditional retirement age."

Explanation: Changes the maximum age to make contributions to your IRA. Currently removes the age with no replacement. The ability to continue to add to your IRA as long as you live!

Section 111: Part-Time Employees Need Retirement Too

"...the bill will require employers maintaining a 401(k) plan to have a dual eligibility requirement under which an employee must complete either a one year of service requirement (with the 1,000-hour rule) or three consecutive years of service where the employee completes at least 500 hours of service.”

Explanation: Part-time employees who complete 1 year with at least 1,000 hours working, or 3 years with at least 500 hours working will make them eligible for a retirement plan.

Section 112: Birth and Adoption Added to Qualified Distributions

"The legislation provides for penalty-free withdrawals from retirement plans for any qualified birth or adoption distributions.”

Explanation: Wanting to adopt, but have all your money tied up in retirement? This section is for you! The ability to take withdrawals from retirement accounts for birth or adoption penalty-free! Keep in mind this will not get you out of paying income tax!

Section 113: Increased Required Minimum Distribution Age

"...the age 70 ½ was first applied in the retirement plan context in the early 1960s and has never been adjusted to take into account increases in life expectancy. The bill increases the required minimum distribution age from 70 ½ to 72."

Explanation: Increased RMD age from 70.5 to 72. For those of you that want to keep as much money away from the IRS as possible, this is a small victory.

Section 302: Increased Utility For 529 Education Plans

"The legislation expands 529 education savings accounts to cover the costs associated with registered apprenticeships; homeschooling; up to $10,000 of qualified student loan repayments (including those for siblings); and private elementary, secondary, or religious schools."

Explanation: We must find a solution to the student loan crisis that is plaguing our economy, and this is a step in the right direction. It shows a general understanding that not all future success involves attending an ultra-inflated university, and can be achieved through apprenticeships and trades! Also, giving access to up to $10,000 to pay toward student loans out of a 529 plan (or those of your siblings) may be helpful.

Section 401: Modifications to Required Minimum Distribution Rules

“...individuals who are not more than 10 years younger than the employee (or IRA owner), or child of the employee (or IRA owner) who has not reached the age of majority are generally required to be distributed by the end of the tenth calendar year following the year of the employee or IRA owner’s death.”

Explanation: No more stretch IRAs. With this modification non-spouse beneficiaries, will be required to draw down the IRA within 10 years. Looking into other options than an IRA for estate planning may be more optimal. These options include vehicles like life insurance and Roth conversions.

Section 402: Increased Penalties for Failing to File

"The legislation increases the failure to file penalty to the lesser of $400 or 100 percent of the amount of the tax due.”

Explanation: The IRS would like to increase the efficiency of the tax administration by encouraging the filing of timely and accurate returns.

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The views depicted in this material are for information purposes only and are not necessarily those of Cetera Investment Services LLC. They should not be considered specific advice or recommendations for any individual. All investing involves risk, including the possible loss of principal. There is no assurance that any investment strategy will be successful.

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