The SECURE Act Makes Big Changes to 401(k)s, Annuities and IRAs

By P. Kristen Bennett, Esq. –

Beginning on January 1, 2020, after nearly three years, the Setting Every Community Up for Retirement Enhancement (SECURE) Act will become effective. The bill impacts how money is saved for retirement and the use of retirement funds over time. Here are five highlights of the SECURE Act:

1. Effective in 2020, the age triggering required minimum distributions from 401(k)s and IRAs is pushed from 70.5 years to 72 years, allowing retirement accounts to compound untouched for an additional 1.5 years.
2. The SECURE Act repeals age limits on IRA contributions. Prior to SECURE, contributions to traditional IRAs stopped at age 70.5.
3. Beginning in 2021, part-time employees who have worked at least 500 hours per year for three consecutive years are eligible to contribute to an employer sponsored 401(k) plan.
4. The new law permits an individual to take out up to $5,000 from a retirement account without a 10% early-withdrawal penalty upon the birth or adoption of a child. Married couples may withdraw up to $10,000.
5. “Stretch” IRAs are eliminated. The SECURE Act eliminates the rule allowing a non-spouse IRA beneficiary to stretch the required minimum distribution from an inherited account over his or her own lifetime. Under the new law, funds from an inherited IRA must be distributed to a non-spouse beneficiary within 10 years of the IRA owner’s death. Exception: Distributions over the life of a non-spouse beneficiary are permitted if the beneficiary is a minor, disabled, chronically ill, or not more than 10 years younger than the deceased IRA owner.

If you have any questions, Kristen Bennett can be reached at kbennett@gawthrop.com or 302-777-5353.