Despite all the gridlock in Washington, as well as an impeachment,
the SECURE Act has passed. It changes a number of important retirement plan
rules. The act runs over 120 pages, so the experts will be poring over it for
some time. Meanwhile, a number of sources have weighed in on what they think
are the key provisions. (Note that last-minute alterations and more detailed
analysis may lead to additional changes in the coming weeks.)
The 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
Raising the 401(k) required minimum distribution age from 70 ½ to
72. Critics have pointed out that only the well-off are really affected by
this, people who can put substantial assets into a 401(k) and don’t 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
Removes the maximum age restriction for traditional IRA contributions.
If you work into your 70s and beyond, you can still contribute.
Makes it easier for part-time workers to join their employer’s
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.
Eliminates the “stretch” provision. Until now, non-spouse
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.
Other Significant Changes
The government has repealed the controversial Cadillac tax on
high-end health plans. This repeal is part of a year-end spending bill. There is
also a list of extenders that at least temporarily change some tax provisions.
The exclusion from gross income for discharge of debt income from
qualified principal residence debt.
The medical expense deduction is now subject to a 7.5% AGI
threshold instead of 10%.
The nonbusiness energy property credit was extended from tax year
2018 through 2020.
The work opportunity credit was extended from tax year 2018
The employer tax credit for paid family and medical leave was
extended through tax year 2020.
All these changes will be phased in at different times. There are also exceptions and other subtleties. Whether you’re concerned about your own family’s issues or plans that your company runs, it’s best to keep in close touch with financial professionals to make sure you make a smooth transition to the new rules.