SECURE Act becomes law

The Setting Every Community Up for Retirement Enhancement (SECURE) Act, passed in December 2019, includes many bi-partisan reforms that increase access to workplace plans and expand retirement savings. The retirement legislation includes policy changes that will impact defined contribution (DC) plans, defined benefit (DB) plans, individual retirement accounts (IRAs) and 529 plans.

These FAQs provide an initial overview of some of the key changes outlined in the act. A number of these provisions will be subject to interpretations from the Internal Revenue Service or other authorities. As always, you should consult with your personal tax advisor regarding your own situation.

SECURE Act basics

  • What is the SECURE Act?

    The Setting Every Community Up for Retirement Enhancement (SECURE) Act is a bipartisan retirement bill that was included in a larger legislative package passed by the House of Representatives on December 17, 2019, and by the Senate on December 19, 2019. The bill was initially introduced in the House of Representatives and championed by Ways & Means Chairman Richard Neal and ranking member Kevin Brady. The bill includes reforms to DC Plans, DB plans, IRAs, and 529 plans.

  • When does this law become effective?

    Most provisions in the law become effective January 1, 2020. Open multiple employer plans (MEPs) provisions will be effective January 1, 2021.

Impact to IRAs

  • How will the SECURE Act affect inherited IRAs?

    For anyone who inherited an IRA from an original IRA owner who passed away prior to January 1, 2020, no changes to the current distribution schedule are required. However, for situations where the original IRA account owner passes away after December 31, 2019, fewer beneficiaries will be able to extend distributions from the inherited IRA over their lifetime. Many will instead need to withdraw all assets from the inherited IRA within 10 years following the death of the original account holder. Exceptions to the 10-year distribution requirement include assets left to a surviving spouse, a minor child, a disabled or chronically ill individual, and beneficiaries who are less than 10 years younger than the decedent.

  • How will the changes to inherited IRA distributions impact retirement planning?

    This change will require some investors to reevaluate their retirement and/or estate planning strategies. While some beneficiaries may qualify for exemptions to the 10-year rule, others will be required to draw down assets more rapidly than required under the current rules. However, it is important to note that anyone who inherited an IRA from an original account owner who passed away prior to January 1, 2020, can continue their current distribution schedule.

  • How does the law change required minimum distributions (RMDs)?

    The law increases the age at which an individual must begin taking required minimum distributions (RMDs) from 70½ to 72. The act states that this change applies beginning with IRA account owners who will attain 70½ on or after January 1, 2020. Congress recognizes Americans are increasingly working and living longer and updating RMD rules to reflect changes in life expectancy will allow Americans to continue their retirement savings for an extended period of time.

  • If a person reaches the age of 70½ in 2019, do they need to take an RMD in 2020?

    The act states that the beginning RMD age is shifted to age 72 for those who reach the age of 70½ starting in year 2020. This would mean that those reaching age 70½ in 2019 would need to continue to take RMDs in 2020. The IRS may provide further guidance on this point so those who reached age 70½ in 2019 may want to speak with their tax advisor about their 2020 distribution approach.

  • What is the impact to contribution rules for traditional IRAs?

    For taxable year 2020 and beyond, the law removes the age limit at which an individual can contribute to a traditional IRA. Prior to the act, an individual could not contribute after age 70½; the act allows anyone that is working and has earned income to contribute to a traditional IRA regardless of age.

  • How will the new law affect distributions upon the birth or adoption of a child?

    Upon the birth or adoption of a child, the law permits an individual to take a "qualified birth or adoption distribution" of up to $5,000 from an applicable eligible defined contribution plan or IRA. This distribution is not subject to the 10% early withdrawal penalty.

Other accounts and impacts

  • How does the law impact 529 accounts?

    The law expands the definition of a tax-free or qualified distribution from a 529 savings plan to include repayment of up to $10,000 in qualified student loans, and expenses for certain apprenticeship programs. The SECURE Act makes this change retroactive to distributions made after December 31, 2018. Fidelity is working to analyze and implement this change as quickly as possible.

  • How does the law impact qualified deferred annuity contracts?

    Similar to IRAs, for qualified deferred variable and fixed annuities, the law increases the age at which an individual must begin taking required minimum distributions (RMDs) from 70½ to 72. The act states that this change applies beginning with a contract owner who will reach 70½ on or after January 1, 2020. This shifts the beginning RMD age to 72 for those who reach the age of 70½ in year 2020, meaning that those reaching age 70½ in 2019 would need to continue to take RMDs in 2020. The IRS may provide further guidance on this point; those who reached age 70½ in 2019 may want to speak with their tax advisor about their 2020 distribution approach.