Knowledge and Insights


Money in bag

On December 20, 2019, Congress passed the Setting Every Community Up for Retirement Enhancement (SECURE) Act, which went into effect on January 1, 2020.  This is the broadest piece of retirement legislation passed in 13 years.  The changes affect many Americans and could make saving for retirement easier and more accessible for many individuals.  Below are some of the main provisions for businesses and individuals, as well as tax changes that were included in the law.

Small Businesses:

  • 401(k) for Part-Time Employees
    Prior to the SECURE Act, part-time employees were generally ineligible to participate in retirement plans due to the minimum yearly hour requirement.  The law now requires employers with a 401(k) plan to include any worker who works more than 1,000 hours per year or 500 per year over 3 consecutive years.  This is beneficial for older employees who wish to transition into retirement by working part-time while continuing to save for eventual retirement.  For employers that have plans that require nondiscrimination testing, part-time employees can be excluded for testing purposes.  Employers will not be required to make matching or elective contributions on their behalf.
  • Assistance for Small Businesses Offering Retirement Plans
    Small business owners can receive a tax credit for a retirement plan start-up of $250 per non-highly-compensated employee eligible to participate in a work retirement plan (minimum credit of $500 and maximum credit of $5,000).  This is effective for plans created after December 31, 2019.
  • Auto-Enrollment and Escalation of 401(k) Plans Enhanced
    The SECURE Act creates a new credit of up to $500 per year to employers who set up 401(k) plans and SIMPLE IRA plans that include automatic enrollment.  This credit is in addition to the start-up credit and is available for three years.  This credit also is available to employers who convert current plans into an automatic enrollment design. In addition, to encourage additional retirement savings, the Act raises the cap for auto enrollment contributions in employer-sponsored plans from 10% to 15%.


  • Stretch IRAs Eliminated
    Prior to the new legislation, after-death required distributions allowed a designated beneficiary to draw down the plan over the beneficiary’s life expectancy, allowing them to “stretch” the value of the IRA and take advantage of the tax deferred growth.  The SECURE Act now requires the beneficiary to withdraw the full amount of the plan within 10 years of inheritance.  However, there are some exceptions to the 10-year rule if the designated beneficiary is:
    • The surviving spouse;
    • The minor child of the plan owner;
    • A chronically ill or disabled individual;
    • Any other individual who is not more than 10 years younger than the plan owner.

Under these exceptions, the balance of the plan is distributable over the life expectancy of the beneficiary.

  • Required Minimum Distribution Starting at Age 72
    Under previous law, retirement plan participants were required to begin taking distributions from their accounts at age 70½.  This was to prevent plans from being used as an estate planning vehicle to transfer wealth to beneficiaries.  The SECURE Act pushes the age for required distributions to age 72, providing an additional 18 months of tax deferred growth.  This is effective for distributions required after December 31, 2019, for individuals who turn 70½ after that date.
  • No Age Restrictions on IRA Contributions
    Previously, employees could contribute to a traditional IRA up to age 70½.  Under the SECURE Act, the age limit is entirely removed.  However, income limitations for contributions remain in place.  This is beneficial for employees who are remaining in the work force.  There continues to be no age-based restrictions for a ROTH IRA.
  • Penalty-Free Withdrawals for Birth or Adoption of a Child
    The SECURE Act now allows penalty-free withdrawals from retirement plans for qualified birth and adoption expenses, up to $5,000, and would need to be claimed within one year of birth or adoption. The distributions are subject to ordinary tax.   Individuals also may recontribute the funds at a later time.  These funds would be treated as a rollover and not included in taxable income.
  • Annuity Information and Options Expanded
    The Act now permits trustee-to-trustee transfers, to another employer-sponsored retirement plan or IRA, of lifetime income investments (annuities) or distributions of a lifetime income investment in the form of a qualified plan distribution annuity.  As retirees are living longer, this will allow participants to preserve their lifetime income investments. Additionally, retirement plans now will issue lifetime income disclosure statements. Similar to Social Security statements that provide the expected future benefit, this statement will show the potential monthly income the retiree would receive if their 401(k) balance was used to purchase an annuity.  This will increase the information available to the individual and their advisors as they plan for retirement.
  • Graduate Students and Care Providers Can Save
    Graduate and post-doctoral students receive stipends or other income that is not treated as compensation, previously disqualifying them from making retirement contributions.  The SECURE Act changes this by treating such stipends or payments as compensation for the purpose of IRA contributions.  This provision also applies to foster care providers who may contribute the amount of their tax-exempt “difficulty of care” payments to an IRA plan.
  • Expansion of 529 Plans
    The SECURE Act now allows for 529 plans to pay principal or interest on a qualified education loan of the designated beneficiary or a sibling of the beneficiary, up to a lifetime amount of $10,000 per beneficiary.  The Act also expands 529 accounts to cover costs associated with apprenticeships.

Tax Changes:

  • TCJA Kiddie Tax Rates Repealed
    The Act repeals the kiddie tax measures that were added by the Tax Cuts and Jobs Act.  The unearned income of children no longer taxed at trust/estate rates will again be taxed at the parents’ rates on net unearned income. Although this change is effective for tax years that begin after 2019, taxpayers can elect to apply it retroactively to tax years 2018 and/or 2019.
  • Failure to File Penalties
    The SECURE Act increases the failure-to-file penalty for returns more than 60 days late to the lesser of $400 or 100% of the amount of the tax due, effective for returns due after December 31, 2019.

With such numerous and significant changes, the SECURE Act requires proactive planning.  Let us help you review your goals for a successful retirement and an effective estate plan. I can be reached at or 609-689-9700.