On December 20, 2019, retirement reform finally took a giant step forward with the passage of the Setting Every Community Up for Retirement Enhancement (SECURE) Act. Starting out as H.R. 1994, the SECURE Act passed the House of Representatives with an incredible bipartisan vote of 417-3 in May 2019, stalled in the Senate for months, then became law as part of an end-of-year appropriations act. The financial community has been unpacking some 30 provisions, many of which became effective January 1, 2020, that directly impacted the daily business of financial, estate, retirement, and tax planners across the country.
Let’s review a summary of these major changes:
Contributions to a traditional IRA can now be made with no age cap, mirroring the rules of Roth accounts. As long as individuals continue working and earning income, they can continue saving for retirement.
Required minimum distributions from qualified retirement accounts must be taken before April 1 of the year following the year the account holder attains age 72 (the age threshold of 70½ expired December 31, 2019).
Qualified retirement accounts can be converted into lifetime annuities. The Act created a safe harbor for employers to offer annuities in their 401(k) plans and other qualified plans, subject to ERISA fiduciary requirements.
The Act allows new parents to take penalty-free distributions from retirement plans within a year of the birth or adoption of a child to cover related expenses, up to $5,000. Income taxes still apply if the withdrawal is made from a traditional account, but the penalty is waived. These distributions can be repaid back into the account.
Say good bye to the tax-deferred benefits of stretching inherited IRA assets out for the lifetime of the non-spousal beneficiary. SECURE established a new 10-year limit on inherited IRAs and defined contribution plans. IRAs inherited before December 31, 2019 can legally maintain their “stretch” status and few exceptions are allowed for eligible designated beneficiaries, or EDBs. Eligible designated beneficiaries include:
The tax credit for small businesses to set up retirement plans increased substantially, from $500 to $5,000 in certain circumstances. A further $500 tax credit incentive was added to encourage business owners to offer automatic enrollment for new hires.
In addition, the Act allows unrelated small businesses to join forces in opening 401(k) multiple-employer plans (MEPs) to spread out costs and administrative duties over the group rather than leaving those duties to be shouldered by the business owner alone. Until now, only related businesses were allowed to join together in “closed” MEPs. The Act also insulates members of the group from the “one bad apple” liability risk that can be posed by a single negligent group member.
Education savings plans, known as 529 plans, can be used to repay student loans and pay for costs associated with apprenticeship programs, expanding the qualified higher education definition (Student loan interest is not included).
Yes! Other miscellaneous provisions of the Act are available for light reading online, but suffice it to say that with “just these” changes, keyboards across the country are clicking to update dates, amounts, forms, letters, software programs, and yes, insurance CE courses! Did we mention that earlier in December, the Fifth Circuit Court of Appeals ruled that the ACA’s Individual Mandate was now unconstitutional? Or that the medical expense deduction threshold, which was raised to 10% by the ACA in 2014, was never actually imposed, and remains at 7.5%? Or that the 40% Cadillac Tax on insurers for high-cost employer-sponsored health plans was officially repealed.
Throughout the coming months, updates will continue as new information becomes available and new regulations are formalized. A.D. Banker sets the industry standard with up-to-the-minute relevance of our live CE Webinar content—all presentations have been updated to include as much new information as is available, and online and printed content updates continue.
An immediate update was completed by our product department for the Securities Industry Essentials (SIE) exam and the Series 6 exam content. Relevant testable SECURE Act content has been included in the courses and practice exams, which can be accessed from our website 24/7.
No matter how many changes are thrown our way, A.D. Banker & Company is your source for up-to-date insurance information. We continue to provide free monthly webinars covering current insurance trends and markets. Stay tuned for upcoming changes in the NAIC Annuity Suitability Model Act, as this reform begins its sweep across the country very soon.