SECURE Act and What You Need to Know

Posted on January 14, 2020

Effective January 1, 2020, Congress passed an appropriations bill that included a piece of legislation called the Setting Every Community Up for Retirement Enhancement Act (SECURE Act). In summary, the bill may impact your plan in the following ways:

  •  Increase Required Minimum Distribution Age (Section 114). The SECURE Act increases the age at which Required Minimum Distributions (RMD) must begin from 70 ½ to 72. Participants reaching the new requisite age will still be able to delay their first RMD until the following year (by April 1), for which they must take their first RMD (the required beginning date). Additionally, a second RMD will still need to be distributed by the end of the same year (the year the individual turns 73). Effective for participants turning 70 ½ after December 31, 2019.
  • Child-Birth or Adoption Withdrawals (Section 113). The SECURE Act permits participants to take penalty-free withdrawals of up to $5,000 (per child, per parent) for expenses related to the birth or legal adoption of a child (up to the age of 18) for up to one year following the qualifying event. These distributions may be recontributed back to the plan from which the distribution was made, or to an IRA. This is effective for distributions after December 31, 2019.
  • Post-Death Required Minimum Distribution Rules for IRAs and Defined Contribution Plans (Section 401). The SECURE Act changes the post-death Required Minimum Distributions (RMD) rules for inherited retirement plan accounts requiring that all distributions (to a designated beneficiary) be made by the end of the tenth calendar year following the year of the participant’s death or inheritance. This change differs from existing law that allows designated beneficiaries to use their own life expectancy for distributions. The 10-year distribution requirement does not apply if the designated beneficiary, also referred as eligible beneficiary, is a surviving spouse, disabled or chronically ill, not more than 10 years younger than the participant, or a child of the participant who has not reached the age of majority. This is effective for distributions by reason of a participant’s death after December 31, 2019 (December 31, 2021 for governmental plans).
  • Reduced Minimum Age for In-Service Distributions (Section 104 of Division M). The SECURE Act reduces the voluntary in-service distribution minimum age under a pension plan or governmental section 457(b) plan to age 59 ½ (rather than age 62 that was permitted for pension plans or age 70 ½ that was permitted for 457(b) plans). This is effective for plan years beginning after December 31, 2019.

We will continue to watch the development of this legislation closely and post any relevant updates or changes.

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