The SECURE Act of 2019

The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019, was signed into law on December 20, 2019 as part of a larger Public Law. It provide benefits for both individuals and employers and should be taken into account when establishing or revising estate plans.

Among the Act’s  provisions, it:

  • raised the minimum age for required minimum distributions from 70 ½ years of age to 72 years of age;
  • allowed workers to contribute to traditional IRAs after turning 70 ½ years of age;
  • allowed individuals to use 529 plan money to repay student loans;
  • eliminated the so-called stretch IRA by requiring non-spouse beneficiaries of inherited IRAs to withdraw and pay taxes on all distributions from inherited accounts within 10 years; and
  • made it easier for 401(k) plan administrators to offer annuities.

The SECURE Act gives employers an incentive to create 401k plans and to expand access to their existing plans to more workers. Under the new Multiple Employer Plan (MEP) provision, unrelated small employers may join together to establish a shared 401(k) plan. This allows small businesses to pool resources and minimize the administrative expenses of establishing a plan. The SECURE Act eliminates the prior requirement for MEPs to be related through geography or through membership in a common industry or trade association.

The Act also shields employers who join a Multiple Employer Plan from liability for potential misconduct by other employers who are in the same plan; expands the federal tax credit for defraying plan startup costs from $500 to $5,000; and provides an additional $500 tax credit for plans that automatically enroll new hires.  “Long-term, part-time” workers ( defined as Workers at least 21 years of age who have completed at least 500 hours of service each year for 3 consecutive years) must be covered under the Act beginning in 2021.

Employers who offer annuities as part of their defined-contribution retirement plans are shielded from liability under a new safe-harbor provision even if the insurance company selling the annuity commits fraud or collapses, as long as they meet specific regulatory requirements.

Parents may now withdraw up to $5,000 from their individual 401(k) or similar workplace retirement savings plans for each new child without incurring the 10% early distribution penalty and employees who purchase an annuity in their 401(k) can move their annuity to another 401(k) plan at a different employer or to an IRA without paying surrender charges or other penalty fees.

The SECURE Act allows people saving money in a tax-advantaged 529 plan to use up to $10,000 to pay off student loans and 529 plans can now also be used to pay for the costs of apprenticeship programs.

The SECURE Act is estimated to cost $15.7 billion. It is primarily funded through a change to "stretch" IRAs. In the past, non-spouse beneficiaries who inherit IRAs could spread disbursements from the IRA over their lifetime. Under the SECURE Act, disbursements must be collected and taxed within 10 years of the original account holder's death.