The 5 Most Notable Changes in the SECURE Act 2019

Just recently, the SECURE Act of 2019 (which stands for Setting Every Community Up for Retirement Enhancement) was signed into law. There’s a lot to know about the changes this new law brings, so we’ve compiled below the five most noteworthy items we think our clients should know about.

1)    Required Minimum Distribution (RMD) age changes to 72 from 70½ – Beginning in 2020, retirement account holders can now delay their first RMD to age 72. If you turn age 70½ in 2019, however, you still must take your first RMD by April 1, 2020 and take an RMD each year thereafter.

2)    Qualified Charitable Distribution (QCD) age hasn’t changed – Individuals who choose to use their IRAs to make QCDs can still do so beginning at age 70½. They do not need to wait until the new RMD age 72. 

3)    So-called “stretch” IRAs will be eliminated – Under previous law, if a non-spouse beneficiary inherited a retirement account (IRA, 401k, or other defined contribution plan), they could take RMDs based on their own life expectancy. This allowed the withdrawals and accompanying tax consequences to “stretch” over what could be a long time period. Under the SECURE Act, non-spouse beneficiaries must now distribute the retirement accounts within 10 years of the IRA owner’s death. If the non-spouse beneficiary is a minor (the child of the deceased retirement account holder), disabled, chronically ill or not more than 10 years younger than the deceased IRA owner, they are not subject to the 10-year rule. Once the minor beneficiary reaches the age of majority (18), the 10-year rule kicks in. If the minor beneficiary inherits from someone other than a parent (i.e. a grandparent), the 10-year rule applies, regardless of their age.

4)    Removal of maximum age restrictions on Traditional IRA contributions – The new normal for most Americans includes working and living longer. Under previous law, people who had attained age 70½ could no longer contribute to an IRA, even though they had earned income. The SECURE Act repeals the prohibitions previously in place to now allow for those with an earned income to contribute to a Traditional IRA account, regardless of their age.

5)    Benefits of 529 Savings Accounts are expanded – One of the most significant changes to 529 accounts is that families will now be able to use them to repay up to $10,000 in student loans. Keep in mind, this is a federal law, which means some states may not yet consider paying off student loans a “qualified higher education expense”. This could lead to income taxes and penalties at the state level if you use your 529 savings to help pay down student loans. We recommend waiting to see how your state interprets the new federal law before using your 529 savings to pay off student loans.  

For more key provisions in the retirement savings portion of the bill, take some time to read this article by Michael Townsend of Charles Schwab. Supplementary information about the above listed changes and additional items signed into law with the SECURE Act can be found in this blog written by Michael Kitces, which outlines each new provision in more detail. If you have specific questions about how this new law may affect your financial plan, work with a professional (like one of us) to review for necessary changes.

- Margaret Gooley, CFP®, Worley Erhart-Graves Financial Advisors