The SECURE Act, which stands for the Setting Every Community Up for Retirement Enhancement Act, is the biggest piece of retirement legislation in over a decade. Provisions from the bill, which originally passed through the House in May 2019, were wrapped into a larger government spending package and signed into law on December 20, 2019.
This piece of important retirement legislation includes policy changes to retirement plans, annuities, pension plans, and 529 college savings accounts.
Key changes from The SECURE Act include:
- Increasing tax credits for small business owners to set up and run retirement plans
- Introducing incentives for new plans with auto-enrollment
- Raising the required minimum distribution (RMD) age for retirement accounts to 72 (up from 70½)
- Allowing long-term, part-time workers to participate in 401(k) plans
- Expanding options for multiple, unrelated businesses to partner under a single retirement plan (MEPs)
- Permitting parents to withdraw up to $5,000 from retirement accounts penalty-free within a year of birth or adoption
- Allowing withdrawals from 529 plans to repay student loans
Most SECURE Act provisions went into effect on January 1, 2020. Let’s dive deeper into some of the biggest changes ahead for retirement savers and small business owners:
Small business owners can receive a tax credit for starting a retirement plan, up to $16,500
- Small business owners who haven’t established a retirement plan are in luck! The new law provides a start-up retirement plan credit for smaller employers of $250 per non-highly compensated employee eligible to participate in a workplace retirement plan at work. The minimum credit is $500 and the maximum credit is $5,000.
- This credit would apply to small businesses with up to 100 employees over a 3-year period beginning after December 31, 2019 and applies to 401k, SIMPLE, SEP, and profit-sharing plans.
- If your retirement plan includes automatic enrollment to encourage participation, you may also receive an additional credit of up to $500 for the first three years of the plan. This new credit is also available to employers that convert an existing 401k plan to an automatic enrollment design.
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Required minimum distributions (RMDs) now begin at age 72
- Americans are living and working longer than ever before, and this change reflects that shift. Savers will no longer be required to withdraw assets from IRAs and 401ks at age 70½.
- RMDs now begin at age 72 for individuals who turn 70½ in 2020.
- If you turned age 70½ in 2019 and have already begun taking your RMDs, we recommend speaking to your financial advisor regarding any 2020 distributions.