Baldwin Haspel Burke & Mayer LLC

BHBM Tax Law Alert 1/21/2020


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FEDERAL UPDATE

The Setting Every Community Up for Retirement Enhancement Act

The Setting Every Community Up for Retirement Enhancement Act (the “SECURE Act”) was signed into law by President Trump in December of 2019. The SECURE Act was passed to expand the opportunities for individuals to increase their savings and to make administrative simplifications to the retirement system.

The following is a summary of several key provisions of the SECURE Act:

  • Beneficiaries who inherit retirement accounts will no longer be able to use the life expectancy payment method and will now be required to withdraw the entire balance of their inherited retirement accounts within ten (10) years following the plan participant’s death. However, the following “eligible designated beneficiaries” are entitled to use a modified version of the life expectancy payout method:
    • The surviving spouse of the plan participant;
    • A minor child of the plan participant;
    • The disabled or chronically ill; and
    • An individual not less than ten (10) years younger than the plan participant.
  • Effective for distributions required to be made after December 31, 2019, the SECURE Act changes the age that triggers required minimum distributions from 70½ to 72.
  • For contributions made for tax years beginning after December 31, 2019, the SECURE Act repeals the rule that prohibited contributions to a traditional IRA by taxpayers age 70½ and older.
  • For plan years beginning after December 31, 2020, the SECURE Act opens up employer-sponsored 401(k) plans to part-time workers who have worked more than five hundred (500) hours per year in three (3) consecutive years.
  • For distributions made after December 31, 2019, the SECURE Act allows taxpayers to withdraw as much as five thousand dollars ($5,000) from their retirement accounts in the year following the birth or adoption of a child without incurring a ten percent (10%) early withdrawal tax.
  • For tax years beginning after December 31, 2019, the SECURE Act increases the tax credit for small employer pension plan startup costs and provides a credit for small employer plans that adopt automatic enrollment.
  • For plan years beginning after December 31, 2019, the SECURE Act allows 401(k) plans that automatically enroll employees to escalate elective contributions to as much as fifteen percent (15%) of an employee’s salary, instead of ten percent (10%), after the first plan year.
  • For plan years beginning after December 31, 2020, the SECURE Act provides relief for multi-employer and pooled plans so that multiple plans would not be treated as failing to meet defined contribution plan or IRA requirements if one employer in the plan failed to meet its obligations.

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