January 3, 2020

The SECURE Act – Congress passes significant new retirement plan legislation

In the final session of 2019, Congress passed and the President signed, the SECURE Act (The Setting Every Community Up for Retirement Enhancement Act), a significant piece of legislation that contains several important updates and changes for investors.  Among the most significant are the following:

  • The SECURE Act generally ends the “Stretch” IRA. Beginning in 2020, new inheritors (with exceptions) of IRAs now must empty the accounts within 10 years. Previously, non-spouse heirs could “stretch” distributions over their lifetimes.
    • Exclusions from the 10-year rule include:
      • Spousal beneficiaries
      • Disabled
      • Chronically ill
      • Individuals not more than 10 years younger than the employee or IRA owner
      • Certain minor children until they reach the age of majority
    • Importantly, there is no requirement to take distributions during the 10-year period, only that the account is emptied by the end of the 10-year period, meaning that heirs have flexibility in terms of when they take distributions during the 10-year window.
    • This provision could have significant ramifications for trusts set up as IRA beneficiaries as well as potential opportunities for strategic Roth IRA conversions.


  • Retirement plan Required Minimum Distribution (RMD) age Increased to 72 from 70 ½
    • Previously, participants were required to begin taking distributions from their retirement plans at age 70 ½. The idea being that participants should spend the money during their retirement and not use the plans for estate planning purposes. However, the required starting age had not previously been adjusted for increases in life expectancy.
    • An additional side note, Qualified Charitable Distributions from IRAs will still be allowed in the year the IRA owner turns 70 ½.


  • Repeal of age limitation for Traditional IRA contributions
    • Previously, individuals could not make IRA contributions once they reached age 70 ½. The new legislation removes that constraint such that anyone with earned income can make traditional IRA contributions regardless of age.


  • Safe harbor provision for 401k plan sponsors to include lifetime income annuities
    • The new legislation gives fiduciary safe harbor to 401k plan sponsors who include annuity contracts among offerings to participants. Previously, employees could hold plan sponsors liable if an annuity contract provider were unable to meet its obligations. Going forward, if an annuity provider goes out of business or otherwise is not able to meet its obligations under the contract, employees will not be able to sue the plan sponsor employer.


Other provisions of the legislation include:

  • Expansion of 529 eligible expenses to include student loan interest and debt payments
    • The amount is limited to $10,000 per person (not per 529 plan) so, for example, one 529 plan could be used to pay $10,000 each toward student loan debt for five children.
  • Expansion of qualified retirement plan distributions to include birth or adoption
    • The $5,000 qualified distribution is per IRA account holder and per child.
  • Kiddie-Tax provision – back to the former
    • Prior to the 2017 Tax Cuts and Jobs Act, a minor’s unearned income was taxed at the parents’ marginal tax rate. The 2017 legislation changed that to trust tax treatment. The SECURE Act switches back to the earlier parental marginal tax rates.

The SECURE Act includes several significant changes and updates for investors. The changes are likely to impact retirement and investment strategies as well as tax and estate planning. Take this opportunity to review your plans to make sure they are consistent with your goals and the new legislation.