Broker Check

Secure Act impact

February 05, 2020

Sweeping new legislation related to tax and retirement reforms was passed into law by the President in December 2019. The SECURE Act includes numerous reforms to tax and retirement plan rules in what appears to be an attempt to address the “retirement crisis” (lack of savings by some) but the law also includes some lost opportunities. The new law took effect beginning January 2020.


One of the most notable changes for you, our trusted clients, is the elimination of the “stretch” IRA for non – spouse beneficiaries of an IRA and other retirement accounts. Prior to the SECURE Act, non – spouse beneficiaries were permitted to take distributions from inherited retirement accounts over their lifetime, deferring taxes for a longer period. Under the new law, non – spouse beneficiaries of retirement accounts will have to distribute the account fully within 10 years. The funds can be distributed at any time during the 10-year window and while this could be detrimental to some, it’s also a planning opportunity as it relates to your tax situation.


Other significant changes under the SECURE Act include lifting the age restriction on IRA contributions beyond 70.5, provided you have earned income to make contributions. The law also increases the age at which you must begin mandatory Required Minimum Distributions from a retirement account from 70.5 to 72. If you started taking RMDs in 2019 or earlier, the new age increase does not impact you and you must continue taking your RMDs, even if under the new age 72 rule.


Another significant change under the SECURE Act that we’ve identified as an opportunity is the ability to utilize 529 education savings plans to pay for apprenticeships registered with the Department of Labor and the ability to use 529 funds for student loan repayments. Beginning in 2020 you can use up to $10,000 of tax-free distributions from a 529 account to pay off a qualified education loan(s) of the designated beneficiary or their sibling.