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Planning Implications of the SECURE Act

In a surprise move this month, Congress passed the “Setting Every Community Up for Retirement Enhancement Act” (SECURE Act).  This legislation was attached to an appropriations bill that helped avert another government shutdown.  This bill, which goes into effect January 1, 2020, has several provisions that will have broad planning implications for our clients.

Elimination of “Stretch IRA” for Non-Spouse Beneficiaries

This is one of the most significant changes within the SECURE Act and will require everyone to re-think their own retirement distribution strategy.  Under current law, any non-spouse beneficiary who inherits a retirement account has the option to stretch their distributions over their own life expectancy.  This is advantageous when considering tax flexibility and continued tax deferred growth of the asset.  The SECURE Act eliminates this provision for non-spouse beneficiaries who inherit a retirement account after January 1, 2020 and replaces it with a 10-year rule.  Under the 10-year rule, the retirement account must be depleted by the end of 10 years following the death of the account owner.  However, there is no minimum each year during that 10-year period.  It’s important to note that this does not affect any inherited IRAs received prior to January 1, 2020.

Required Minimum Distribution Age Changed to 72

Gone are the days of calculating your 70.5 birthday.  The SECURE Act is changing the required beginning date for minimum distributions out of retirement accounts from 70.5 to age 72.  This only applies to individuals who have not reached age 70.5 by 12/31/2019.  However, the bill does not change the eligibility date for Qualified Charitable Distributions which will remain at age 70.5.  Individuals who are age 70.5 and older can direct up to $100,000 from their IRA directly to a charity and avoid income taxation.

Traditional IRA Contributions Post Age 70.5

This is a nice provision for those who continue to work post age 70.5 or who have a spouse that continues to work.  You will now be eligible to make IRA contributions if you or your spouse has “earned income” after the age of 70.5.

Qualified Birth or Adoption Distribution

In an effort to help families with the financial burden of having a child, this provision will allow for a penalty-free early retirement distribution of up to $5,000.  This applies to both new born children or the adoption of a child who us under age 18.  This distribution would still be subject to taxation but would avoid the 10% penalty if taken prior to age 59.5.  Also, this provision applies on an individual basis so if a married couple each has retirement assets available, they could both withdraw $5,000 penalty-free for a combined amount of $10,000.

Tax Credit for Establishing a Retirement Plan

This tax credit applies to small businesses with 100 or fewer employees who establish a retirement plan such as a SIMPLE IRA, SEP IRA, 401(k) or 403(b).  The goal is to encourage small employers to establish a plan by providing a tax credit to offset some of the start up costs associated with offering this type of benefit to employees.  Starting with the 2020 tax year, the credit will range from a minimum of $500 to a maximum of $5,000 based on the amount of non-highly compensated employees eligible to participate.  If a plan covers 2 highly compensated employees and 10 non-highly compensated employees, the credit would be $2,500 (10 x $250).  Importantly, this tax credit is available for up to 3 years.

529 Plan Changes

There are 2 new “Qualified Education Expenses” that have been added to the eligible list of tax-free distributions from a 529 account.  First, Apprenticeship Programs that are certified with the Department of Labor will qualify for tax-free distributions from a 529 account.  All fees, books, and required equipment associated with the program will qualify as well.  Second, you will now be able to use 529 accounts to pay qualified student loans up to $10,000 lifetime maximum.  This provision applies to the 529 beneficiary as well any of the beneficiary’s siblings ($10,000 for each sibling).

As with any new legislation, there are provisions that will benefit some and others that may have a negative impact.  The goal with the SECURE Act is to incentivize small businesses to offer a retirement plan to their employees and relax some of the rules for individuals related to withdrawals from tax qualified accounts.  However, the elimination of the “Stretch IRA” will have the most sweeping impact and force everyone to re-think their Estate Plan and how they prioritize the spend down of their retirement assets.


  1. https://waysandmeans.house.gov/sites/democrats.waysandmeans.house.gov/files/documents/SECURE%20Act%20section%20by%20section.pdf

    Michael Kitces Blog – “SECURE Act and Tax Extenders Creates Retirement Planning Opportunities and Challenges”

Important Disclosures:

The views expressed herein are of Tom Boling on December 30,2019 and are subject to change at any time based on market or other conditions, as are statements of financial market trends, which are based on current market conditions. This information is provided as a service to clients and friends of Kavar Capital Partners, LLC solely for their own use and information. The information provided is for general informational purposes only and should not be considered an individualized recommendation of any particular security, strategy or investment product, and should not be construed as, investment, legal or tax advice. Past performance does not ensure future results. Kavar Capital Partners, LLC makes no warranties with regard to the information or results obtained by its use and disclaims any liability arising out of your use of, or reliance on, the information. The information is subject to change and, although based on information that Kavar Capital Partners, LLC considers reliable, it is not guaranteed as to accuracy or completeness. This information may become outdated and we are not obligated to update any information or opinions contained herein. Articles may not necessarily reflect the investment position or the strategies of our firm.