Tax Planning With the Recent SECURE Act Changes

Tax Planning With the Recent SECURE Act Changes

In December 2019 the US Congress finally passed the Setting Every Community Up for Retirement Enhancement (SECURE) Act.  You may not have heard much about this but there are several important parts to it that can affect your taxes and your retirement going forward therefore I wanted to go through it.  

The retirement legislation changes defined contribution plans, such as 401(k)s, defined benefit pension plans, individual retirement accounts (IRAs), and 529 college savings accounts.  The majority of the Act’s provisions went into law on January 1, 2020.

There are eight major parts of the SECURE Act that may have an impact on your current situation or your future so it is good to know about all of them.  Directly below is the short and dirty version of the 7 parts and if any of these parts pertain to you then you can read what follows to get more information about each section.

  1. The act repeals the maximum age for traditional IRA contributions, which is currently 70½.
  2. It increases the required minimum distribution (RMD) age for retirement accounts to 72 (up from 70½).
  3. Inherited distributions
  4. It offers more options for lifetime income strategies for those still working.
  5. New Small Business Owner Options
  6. It allows long-term, part-time workers to participate in 401(k) plans.
  7. It permits parents to withdraw up to $5,000 from retirement accounts penalty-free within a year of birth or adoption for qualified expenses.
  8. It allows parents to withdraw up to $10,000 from 529 plans to repay student loans.


1. Repeals the IRA contribution age

The SECURE act allows you to continue to contribute to a traditional IRA past age 70½ as long as you are still working. The rules for a traditional IRA now more closely aligns with 401(k) plans and Roth IRAs.  This applies to 2020 and beyond, and you are able to contribute up until April 15th, 2021 for the 2020 tax year.

2. Increases RMD Age to 72


The SECURE act no longer requires the withdrawal of assets from IRAs and 401(k)s at the previous age 70½.  Required distribution now begins at age 72 for those who turn 70½ this year (2020) and after.

If you turned age 70½ in 2019 and have already begun taking your RMDs, you should generally continue to take them.  The IRS continues to provide further guidance on this point, so you may want to speak with us regarding any 2020 distributions.

If you are turning 70½ in 2020 and had planned on taking your RMD, it is best to contact us and determine if it benefits you to reconsider your withdrawal plans.


3. Inherited distributions (many of our clients)

For IRAs inherited from original owners who have passed away on or after January 1, 2020, many beneficiaries are required to withdraw assets from those inherited IRAs or 401(k) plans within 10 years following the death of the account holder.

Exceptions to the 10-year rule include assets left to a surviving spouse, a minor child, a disabled or chronically ill beneficiary, and beneficiaries who are fewer than 10 years younger than the original IRA owner or 401(k) participant.

This provision can affect several of our clients and if you have an IRA that you planned to leave to beneficiaries based on prior rules, consider working with us, as this change may require you to reevaluate your retirement and estate planning strategiesIf you’re a beneficiary of an inherited IRA or 401(k) and the original owner passed away prior to January 1, 2020, you don’t need to make any changes.


4. Lifetime Income Strategies (for those still working)

The act raises the auto enrollment contributions cap in employer-sponsored retirement plans from 10% to 15%.  Your retirement savings withheld for could go up every year until you’re contributing 15% of your pay to your savings plan.

Allows “lifetime income investment” to be distributed from your workplace retirement plan.  The retirement income options would be portable. So, if you left your job, you could roll over this lifetime income investment to another 401(k) or IRA.

Retirement plans now much provide, “lifetime income disclosure statements.”  These statements show how much money you could potentially receive each month, if your total 401(k) balance were used to purchase an annuity(similar to the Social Security statements provided every 5 years).  This disclosure allows you to better gauge what that portion of your potential income would be throughout retirement.


5. Small Business Owner Options

If you have a small company(sole proprietorship/LLC/partnership etc.) you may benefit from setting up a 401(k) for yourself, your spouse, and employees (up to 100), owners can receive a tax credit for starting a retirement plan, up to $5,000.  

If you’re a small-business owner and have not yet established a retirement plan or would like to make changes to your plan that may make it easier to implement, you may want to speak to us about the options and positive tax implications.


6. Part-Time Worker 401(k)s

In the past, those that worked less than 1,000 hours/year were generally ineligible to participate in their company’s 401(k) plan.

Except in collectively bargained plans, the law now requires that any employer maintaining a 401(k) plan to offer it to any employee who worked more than 1,000 hours in one year, or 500 hours for 3 consecutive years.

If you work part-time and haven’t previously been eligible to participate in a 401(k), ask your employer or HR department how and when you can enroll.  


7. Birth and Adoption Expenses

The act allows for up to a $5000 distribution per parent from a contribution plan such as a 401(k) or an IRA for qualified birth and adoption expenses.  The 10% early withdrawal penalty does not apply to these withdrawals, and they can be repaid as a rollover contribution to an applicable eligible defined contribution plan or IRA.  This may benefit some of our clients, and if you are about to welcome a child is an opportunity to discuss your tax planning and future with us.  


8. Students and Loan Repayments

Families that have money remaining in their college savings plans, after their student graduates; can now use their 529 savings account to pay up to $10,000 in student debt over the course of the student’s lifetime.

The SECURE act allows money in a 529 plan to be used to pay for certain apprenticeship programs.

If you have a student now is the time to discuss their future financial planning with us and to determine if your family’s 529 plans have money left over what is the best action.



Most of our clients will be affected by the SECURE act changes.  If you fall into any of the above situations you should consider setting up a time to talk to us so that we can plan the best actions for you going forward.  We want to make sure that you are able to take advantage of all of the pluses that the act offers and avoid any pitfalls that could also affect your and your beneficiaries’ futures.