At the very end of 2019 the SECURE (Setting Every Community Up for Retirement Enhancement) Act of 2019 was signed into law. It gave this weeks blog author and Financial Planner, Amy Irvine, CFP®, EA, MPAS®, CCFC, flashbacks to the 2017 tax law changes that happened at the very end of that year too. There are a lot of little nuggets in this Act, below is our interpretation of the Good, the Bad, and the Weird …
The Good
If you are turning under the age of 70½ this year, you can now push the required minimum distribution down the road. The new age is now 72.
Beginning this year (2020), if you continue to work past the age of 72 (was 70.5), you can now make a contribution to your Traditional IRA. Prior to this Act, even if you had earned income, you couldn’t contribute once you reached the “magic” age.
This does not change the Qualified Charitable Distribution age though, that is still 70½
If you receive a stipend or fellowship, that is now considered qualifying income for an IRA (or Roth IRA) Contribution.
Small businesses will be able to join a pooled employer plan (called a MEP or Multiple Employer Plan), which is meant to reduce the cost to small employers And if the employer plan has an automatic enrollment feature, they get a small tax credit.
If you are a volunteer firefighter or EMC, then you will have a one-year repeal of the SALT limit on your federal tax return. Remember SALT stands for State and Local Tax.
If you are planning on having a baby, or adopting a child, in 2020 you can now take a $5,000 distribution from your retirement plan WITHOUT penalty. Of course you have to pay tax on it, but if you redeposit it within 60-days of withdrawing it, then it would not be considered taxable.
We are thrilled that you can now withdraw up to $10,000 during your lifetime from a 529 plan to repay student loans WITHOUT tax or penalty.
The Bad
If you turned 70½ in 2019 but elected to defer the RMD until 2020, sorry, but you still have to take it before April 1, 2020. Also, only those that turn 70½ in 2020 can defer until age 72. If you’re 71, sorry, but you still have to take yours.
Stretch IRA’s won’t be able to stretch as far in the future. Historically, your beneficiaries have been able to elect to take the remainder of your IRA over their life expectancy. That has been nixed in the SECURE Act and the maximum number of years they can defer the account is 10-years. This does not apply to spouses, disabled beneficiaries, chronically ill beneficiaries, certain minor children (until they reach age of majority) and existing inherited accounts. Based on this, we will be looking at our clients situation to determine if it makes sense to convert taxable retirement accounts to Roth Sources.
Employers will now be able to add annuity options to their retirement plan programs. This was fought for very hard by insurance companies and we are very concerned about how this is going to play out. We are not the only ones that feel that way. Read Rick Kahler’s commentary in an article published on December 30 - “Accessing the Damage Done by the Secure Act.”
The Weird
We think these are weird considering the Act is called Setting Every Community Up for Retirement Enhancement and the following have absolutely nothing to do with retirement.
The credit for installing an electric car charger has been restored
Anyone under the age of 21 will be prohibited from purchasing cigarettes and e-cigarette products (i.e. vaping)
The medical expense deduction was set to go up to 10%, but the Act has it at 7.5% once again in 2020.
529 plans can now be used to pay for Apprenticeships
We will be looking at each of our clients' individual situations to determine how this new Act will fit into their financial lives...so more to come!