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SECURE Act

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  • The original SECURE Act (Setting Every Community Up for Retirement Enhancement Act of 2019) became law on December 20, 2019 and changed laws related to tax-advantaged retirement accounts.

    See our previous articles on SECURE 1.0 here:

    There is now a new SECURE ACT 2.0 being proposed.

    The House approved SECURE 2.0 in a 414-5 vote on March 29, 2022 (see H.R. 2954).

    The Senate has not approved the act that the House passed. In the Senate, there is a similar (but different) bill currently in the Finance Committee pending a vote (see (S. 1770).

    Some highlights that are currently in either the House or the Senate version are as follows:

    • Creating a way to find “lost” retirement savings accounts (it turns out many people have forgotten about some of their old retirement accounts). The Department of Labor would be required to create a national online lost and found database for retirement plans.
    • Allowing certain part-time employees who work at least 500 hours for two years to be eligible for their company 401k plans.
    • Provisions making it easier for companies to contribute to 401k plans on behalf of their employees who are making student loan payments instead of contributing to their 401k plans.
    • Automatic enrollment in 401k plans, which would require companies to automatically enroll employees in 401k plans at a rate of at least 3% and then increase each year until employees are contributing 10% of their pay.
    • Increasing the amount allowed to be contributed as catch-up contributions (Example: as of today, someone 50 years old or older can make catch-up contributions to their retirement savings in addition to the standard annual contribution limits of $20,500 for 401(k) plans and $6,000 for individual retirement accounts in 2022. Currently, a catch-up contribution of an extra $6,500 in a 401(k) or $1,000 in an IRA is allowed.)
    • The SECURE ACT 1.0 changed required minimum distributions to begin at age 72 instead of age 70 ½ . SECURE 2.0 is proposing mandatory distributions wouldn’t have to start until ae 73 in 2023; age 74 in 2030; and age 75 in 2033.
    • Changes to the Required Minimum Distribution (RMD) penalty. Currently, if you don’t properly take your full RMD, you are taxed with a 50% tax penalty. The proposed change makes that penalty a 25% tax with the option to timely correct the issue with only a 10% tax penalty.

    Crain & Wooley will continue to update our clients as more information becomes available. Our next client quarterly webinar is coming up in June. Keep your eyes out for the registration invitation.

    SECURE ACT 2.0
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  • After our initial post about the SECURE Act, we began to receive questions, and in response have created a list of FAQs. Each of you is in a unique situation and as such the below questions are general in nature. Reach out to a trusted advisor for a review of your specific investments.

    Does A Surviving Spouse Have To Distribute IRA Funds Inherited From Their Deceased Spouse Within 10 Years?

    No. There are a few exceptions to the new 10-year distribution rule. One of the exceptions is that a surviving spouse can continue to stretch out distributions just like before the SECURE Act was in effect.

    What Are The Other Exceptions To The 10-Year Distribution?

    As with most laws, the SECURE Act has some exceptions. The exceptions to the SECURE Act are beneficiaries that fall under the category called the “eligible designated beneficiary” (EDB). The following are eligible designated beneficiaries:

    • A minor child
      • A minor child does not have to adhere to the 10-year timeline until he or she reaches the age of majority (18 years old in Texas). Upon reaching majority, the beneficiary must comply with the 10-year timeline.
    • A disabled individual
      • As defined by Section 72(m)(7) of the Internal Revenue Code “an individual shall be considered to be disabled if he or she is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or to be of long-continued and indefinite duration. An individual shall not be considered to be disabled unless he furnishes proof of the existence thereof in such form and manner as the Secretary may require.”
    • A chronically ill individual
      • As defined by Section 7702b(c)(2) of the Internal Revenue Code “any individual who has been certified by a licensed health care practitioner as – being unable to perform (without substantial assistance from another individual) at least 2 activities of daily living for a period of at least 90 days due to a loss of functional capacity, having a level of disability similar (as determined under regulations prescribed by the Secretary in consultation with the Secretary of Health and Human Services) to the level of disability described in clause (i), or requiring substantial supervision to protect such individual from threats to health and safety due to severe cognitive impairment.”
    • A person not more than 10 years younger than the decedent account owner.
      • For example, if you pass away when you are 89 and your beneficiary is 79 years old or older (not more than 10 years younger than you at time of death) then your beneficiary does not have to abide by the 10-year timeline.

    What If I Am Already Taking Distributions Under The Old “Stretch IRA” Rules? Do I Have To Distribute Everything Within 10 Years Now?

    No. The provisions of the SECURE Act only apply to distributions for account owners who die after December 31, 2019. If you inherited a retirement account from someone who died on or before December 31, 2019 – you may continue to take distributions under a stretch IRA distribution arrangement.

    Does The SECURE Act Impact ROTH IRAs?

    Yes. Roth IRAs and traditional IRAs both will be required to be distributed with 10 years of the death of the original IRA owner. However, ROTH IRAs don’t have tax consequences at the time of distribution because the taxes were paid upfront and the growth of Roth accounts is tax-free. It is interesting to note that the requirement for withdrawal of funds is 10 years from the date of death of the original IRA owner, so in the instance where taxes won’t be owed on Roth IRA distributions, a Roth IRA beneficiary could wait to take their entire distribution on the last day before 10 years with the same result as making distributions equally over the 10-year required period.

    What If I’m 70 Years Old In 2020, Do I take Required Distributions At 70 1/2 Like I was Expecting, Or Can I Wait Until I’m 72 Years Old? How Does The SECURE ACT Affect Required Minimum Distributions (RMDs)?

    The effective date for the new law was December 31, 2019.

    • If you were already taking required minimum distributions under the old law on December 31, 2019, you will continue to do so as normal.
    • If you were younger than 70 1/2 on December 31, 2019 – you are not required to take distributions until you are 72 years old and must take your first distribution by April 1st of the year following the year you turned 72 years old
    • If you were 70 1/2 on December 31, 2019 – you are required to take distributions under the old law and must take your first distribution by April 1st of 2020.

    Note that if you don’t comply with the laws regarding required minimum distributions, you will be assessed a 50% penalty of the amount you were supposed to withdraw. For example, if you were supposed to withdraw $20,000 in 2020 and you fail to do so, you will be penalized $10,000 for failing to follow the rule on required minimum distributions.

    What Does the Secure Act Really Mean to Me?
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