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On December 20, 2019, President Trump signed into law the Further Consolidated Appropriations Act, 2020 (H.R.1865 P.L. 116-94)(“Appropriations Act”).  Division O of the Appropriations Act (https://www.congress.gov/bill/116th-congress/house-bill/1865/text) included the Setting Every Community Up for Retirement Enhancement Act of 2019 (“Secure Act”) which provides the most expansive retirement plan legislation since the Pension Protection Act of 2006.  The Secure Act make changes to all retirement plan investment vehicles, including individual retirement accounts (“IRAs”) as well as employer sponsored qualified retirement plans (“Plans”). The impact of these changes, most of which are effective beginning January 1, 2020, will be felt by all taxpayers and need to be reviewed by individuals, their financial advisors, and their tax return preparers.

Among the significant changes made by the Secure Act are the following:

• Eliminating the “stretch IRA” for most beneficiaries (trusts, estates and most individuals), by requiring that the inherited retirement account balance be distributed to the beneficiary within ten (10) years of the owner’s death, with exceptions for the following five (5) specifically enumerated individuals: surviving spouses, chronically ill individuals, disabled individuals, minor (below age 21) children of the account owner and beneficiaries that are not more than ten (10) years younger than the account owner
• Increasing the required beginning date age from age 70½ to age 72 for required minimum distributions (“RMDs”)
• Permitting taxpayers over age 70½ to be able to contribute to IRAs
• Repealing “Kiddie Tax” changes made by the Tax Cuts and Jobs Act of 2018
• Expansion of Section 529 plan distributions for apprenticeships and for student loan debt repayments
• Allowing penalty free plan withdrawals for expenses related to the birth or adoption of a child
• Allowing unrelated employers to create pooled qualified employer retirement plans to reduce administrative costs
• Increasing annual limit on credit for “small employer” qualified retirement plan start-up costs
• Requiring 401(k) plans to expand coverage for long-term part-time employees working more than five hundred (500) hours for three (3) consecutive years
• Allowing employers to adopt qualified retirement plans by the filing due date, including extensions, of the employer’s tax return rather than by the end of the tax year
• Easing fiduciary burdens for purchase of annuity contracts by defined contribution qualified retirement plans
• Allowing employer to elect safe harbor status for 401(k) Plan after the end of the year
• Requiring qualified employer defined contribution plans to include a lifetime income disclosure to plan participants annually
• Increasing penalties for failure to file tax returns including returns for qualified employer plans (Form 5500)

We are currently reviewing these provisions and the impact these changes will have on retirement planning and planning for post-death distributions from retirement plan accounts.   The changes to the post-death distribution rules will have a significant impact on estate planning, especially in circumstances where there are large retirement plan assets and where retirement plan assets are being left to a trust.  Given the substantial nature of these changes, we will be issuing separate articles exploring the impact on retirement and estate planning.  Our attorneys will be presenting these changes and the impact on retirement and estate planning on behalf of various professional organizations over the coming weeks and months. For a full listing of these presentations visit the Upcoming Events & Seminars page on our website https://kulzerdipadova.com/events/