By Bill Saylor, CPA email@example.com
Two major pieces of legislation were finalized and signed on December 20, 2019 and are effective now. Specifically, the tax extender provisions were covered in the previous article Late December Tax Changes are Effective Now – and Retroactively! The SECURE Act provides significant changes for retirement accounts for both individuals and businesses. Major changes are noted below.
- Required minimum distributions (RMDs): Individuals under 70 ½ years old at December 31, 2019 may defer RMDs until the year they turn 72. If you turned 70 ½ years in 2019, you can still take the RMD until April 1, 2020.
- Individuals who are working, including self-employment, may continue to make IRA contributions. Those over 70 ½ years who make such contributions may have a reduced qualified charitable contribution limit.
- Non-tuition fellowship and stipend payments paid to graduate and postdoctoral students are now considered compensation for determining eligibility to make IRA contributions. There is a similar provision for foster care “difficulty of care” payments in the law.
- Directed investments that are no longer allowed based on amended plan rules may now be distributed as a nontaxable qualified distribution.
- Long-term part-time workers can now participate in 401k plans as long as they work at least 500 hours per year for at least 3 consecutive years.
- The 10% penalty for distributions is waived for births or adoption expense up to $5,000 per individual (so $5,000 for each spouse if applicable.)
- Section 529 accounts can now cover registered apprenticeships.
- Inherited retirement plans and IRAs must generally be paid out within 10 years of the death of the account owner. Exceptions apply for surviving spouses, child beneficiaries who have not reached their majority, chronically ill beneficiaries, etc.
- Changes to the kiddie tax added under the Tax Cuts and Jobs Act in 2017 are repealed going forward or taxpayers can elect to apply the repeal retroactively to 2018 or 2019.
- Multiple employer reporting and Form 5500 filing requirements are reduced and a new pooled employer plan option is defined.
- Auto enrollment safe harbors for 401k increased with default rates allowed as high as 15.
- 401k plans making nonelective contributions to non-highly compensated employees (non HCE) no longer has to provide a safe harbor notice.
- Employers may take a credit of the lesser of $500 or 50% of qualified startup costs for starting a new qualified retirement plan, SIMPLE IRA plan or SEP that covers at least one non HCE.
- There is an additional credit up to $500 for new plans that include an automatic enrollment provision.
- 403b plans that are terminating can now convert employees to individual accounts.
- Qualified plans can now be adopted until the due date including extensions of the tax return for the year.
- Failure to file penalties for 5500 returns and related returns increased.
If you have any questions, please talk to your tax preparer or business advisor.