Key Components of the Secure Act
Key Components of the SECURE Act include:
- 401(k)s for part-time employees;
- IRA contributions for graduate students;
- Penalty-free for student loan debt;
- Penalty-free for birth or adoption;
- Annuities in 401(k) plans;
- IRA contribution age limits eliminated;
- Required Minimum Distributions (RMDs) increased to age 72 and Inherited “Stretch” IRA Eliminated (partially).
401K Plans for Part-Time Employees
- Part-Time Employees eligible for a 401(k) contribution have worked at least 500 hours per year for at least (3) consecutive years and are at least age 21 or older
- Includes Profit-Sharing Plans but not Employee Stock Ownership Plans (ESOP).
- Previously, employers were able to exclude Part-Time Employees working less than 1,000 hours
IRA Contributions for Graduate Students
- Graduate Students with post-doctoral stipends and non-tuition payments can be treated as compensation for purposes of making IRA contributions.
- Previously, stipends and non-tuition payments received by graduate and post doctoral students were not treated as compensation.
Penalty-Free for Student Loan Debt
- Withdrawals up to $10,000 from 529 Plans to pay off student loan
- Amount can also comprise of the beneficiary's siblings, including brother, sister, step-brother, or step-sister
Penalty-Free for Birth or Adoption
- Withdrawals up to $5,000 from their plan to assist with costs related to the birth or adoption of a child.
- With married couples, each spouse may withdraw up to $5,000 penalty-free for a qualified birth or adoption.
Annuities in 401(k) Plans
- Benefits those in need of more access to and sources of retirement income as an optional safe
- Offering lifetime income benefit options under a defined contribution plan, similar to a defined benefit (or “pension”)
IRA Contribution Age Limits Eliminated
- Allows individuals employed past age 70 ½ to contribute to IRAs, matching the rules for 401(k) plans and Roth IRA's
- Previously, individuals with earned income couldn’t contribute to a Traditional IRA past age 70 ½.
IRA RMDs Increased to Age 72
- This rule is only applicable to individuals who did not reach age 70 ½ by the end of
- Previously, RMDs were age 70 ½ with some receiving a distribution in the same year they turned age 70 while others were age
- January 1 – June 30: Age 70
- July 1 – December 31: Age 71
Inherited “Stretch” IRA Eliminated
- The “new law” does not affect non-qualified stretches (e.g. non-qualified annuity).
- As of January 1, 2020, beneficiaries are limited to 10 years (unless an eligible beneficiary).
- Current Inherited IRA beneficiaries are still eligible to “stretch” but this allowance is removed under new rules going forward.