The SECURE Act, or Setting Every Community Up for Retirement Enhancement Act, and its successor SECURE 2.0 are significant pieces of retirement legislation impacting millions of Americans.   The Acts introduce several key provisions aimed at improving retirement savings and financial security for individuals in the United States. Some of the main features of the SECURE Act and SECURE 2.0 include:

1. Extended Required Beginning Date (RBD) for Required Minimum Distributions (RMDs): The original SECURE Act raised the age when individuals are required to begin taking distributions from their traditional retirement accounts from 70½ to 72 beginning in 2020, and SECURE 2.0 again raised the age to 73 for individuals attaining age 72 after December 31, 2022 and looking ahead further increased the RBD age to 75 for individuals attaining age 74 after December 31, 2032. In this era when many individuals are still working into their 70s, allowing individuals to delay withdrawing income from their retirement accounts may not only defer taxes but may result in lower taxes due to decreased taxable income after retirement.

2. Elimination of age limit for deductible traditional IRA contributions: The SECURE Act removed the prohibition for making deductible contributions to traditional IRAs, allowing with earned income beyond age 70½ to continue to contribute to their retirement accounts.

3. Expansion of retirement plan access for part-time workers: The SECURE Act requires employers offering qualified retirement plans to allow long-term, part-time employees who work at least 500 hours per year for three consecutive years (beginning after December 31, 2021) to participate in such plans.

4. Lifetime income options in retirement plans: By modifying certain actuarial testing requirements for qualified plans, the SECURE Act encourages the availability of more lifetime income options, such as annuities, within retirement plans to help individuals secure a stream of income in retirement.

5. Penalty-free withdrawals and repayment options: The SECURE Act provides an exception from the 10% early withdrawal penalty on up to $5,000 withdrawn from a retirement plan for expenses related to the birth or adoption of a child. SECURE 2.0 extended that exception to domestic abuse victims (up to an aggregate of $10,000) and individuals who are certified by a physician to be terminally ill. In all cases, individuals may recontribute the amount withdrawn to their retirement account without limiting their normal contributions within three years of the initial distribution.

6. Changes to inherited retirement accounts: One significant change introduced by the SECURE Act was the elimination of the “stretch IRA” provision for many beneficiaries and the creation of the new 10-year rule. Under prior law, individual and certain trust beneficiaries could stretch the inherited IRA payments out over their lifetime similar to the original IRA owner, but under the SECURE Act, only “eligible designated beneficiaries,” such as surviving spouses, minor children of the decedent, and disabled individuals, may take advantage of this lifetime stretch. SECURE 2.0 and Proposed Treasury Regulations attempted to clarify many of the rules related to required minimum distributions for designated beneficiaries who do not meet the eligibility requirements for stretch payouts.   Beneficiaries inheriting retirement accounts after December 31, 2019, should closely review their options with tax advisors to insure compliance and avoid unnecessary penalties.

These are some of the key provisions of the SECURE Act and SECURE 2.0. It’s important for individuals to understand how these changes may impact their retirement planning and financial strategies. Consulting with a financial advisor or tax professional can provide personalized guidance based on individual circumstances.

We are always available to help you navigate matters that affect your retirement plans.

Susan R. Foard, CPA, CGMA/President of Pugh Wealth Management