SECURE Act - Retirement Plan Update
Hello everyone! On a somber note – an important retirement update. On December 20, 2019 Congress passed the “Setting Every Community Up for Retirement Enhancement Act” (SECURE), which has important implications for people’s IRAs and 401Ks. The SECURE Act has many nuances but I tried to summarize the main points below:
The minimum required distribution age for IRAs and 401Ks increased from 70.5 to 72. (as the population ages and lives longer)
If you leave your retirement to non-spouse beneficiaries, they must empty the acocunt and pay taxes within TEN years of their death. There are small exceptions for minor children, disabeled/chronically ill beneficiaries, people within 10 years of age of the deceased, etc.
Now you can continue to contribute to an IRA indefinitely – there is no age limit. However, you cannot contribute more than your total compensation for the year (important for people living abroad and taking the foreing income exclusion). However, stipends and non-tuition fellowships can now be considered income for the purpose of this compensation test (they were not before).
Before, businesses with part-time employees who contributed to their own employer 401K did not have to contribute to the 401K of their employees. Now employees who work 500+ hours during the year must be allowed to participate in the 401K plan. (this is to eliminate discrimination against part-time employees and allow them to contribute to their retirement)
The Kiddie Tax was re-instead, this means that the unearned income of children will be taxed at the marginal rate of their parents. Kiddie tax was repealed in Dec 2017 and children’s income was taxed at trust rates. Since trust rates are so compressed and high, Congress decided that the Kiddie Tax imposed less of a burden.