SECURE in the Knowledge - 02/06/2020
For earlier Food for Thought entries, please go to
the Food for Thought Archive.
No matter where you are this winter, you'll eventually need to know at least the high points of the new SECURE Act of 2019, much of which became effective on January 1, 2020. SECURE is another of those acronyms that Congress loves and this one stands for "Setting Every Community Up for Retirement Enhancement". It sounds like someone was determined to use that name and then worked overtime to come up with the words to make it happen.
Anyhow, while the law has 125 pages and 30 sections, some are more important to most of us than others. So here goes - and I'll get the bad news out of the way first.
Many of you probably know that if you die and have an IRA that's payable to your spouse as the beneficiary, he/she can "roll over" the account into a spousal IRA that allows the accrued income earned by the account to be taxed gradually over the spouse's remaining lifetime - rather than being taxed all at once at the death of the account owner. That's still the case - which is good, of course - but the bad news is that if there's no surviving spouse and the beneficiaries are the owner's children, for example, the deferral of income taxes now will generally last only 10 years and not be "stretched" over the entire lifetime of any of the children, as used to be the case. There are a few exceptions to the stretch-less rule, but they probably won't apply in the majority of cases. (One of the exceptions, though, is when the sole beneficiary is a person with special needs.)
How about some good news? There's long been a restriction against people over 70 1/2 making contributions to their traditional IRAs. That's gone now, so if you just can't see yourself kicking back by 70 1/2, you'll be able to keep contributing to your IRA as long as you want - like you've been able to do with Roth IRAs. I'm sure this will warm the hearts of most of the people close to that age who voted for the act - you know, Congress.
Also, if you're still punching the clock and haven't yet celebrated your 70 1/2 birthday, you won't have to take a "required minimum distribution" from your retirement account until after reaching 72. This may not be a major improvement, but it's recognition that many people are working longer - like most of the Supreme Court . . . and Congress.
For younger readers, you may know there's been a 10% penalty for most withdrawals from retirement plans prior to reaching 59 1/2. The new penalty-free exceptions are for withdrawals of up to $5,000 for the costs of childbirth or adoption, for a period of one year beginning with the date of those happy events. And if the plan participant can pay back the funds, it can also be done without penalty.
There's a waiver of the withdrawal penalty, too, for distributions of up to $100,000 to cover expenses incurred in qualified disaster areas, such as those hit by devastating forest fires, tornadoes, and hurricanes - none of which, of course, could possibly be caused by climate change.
It's also a sign of the times that there's a growing number of home health care workers - which itself is a good thing. The problem was that many of them haven't been able to contribute to retirement accounts because their compensation often wasn't considered taxable income - which kept them from meeting the compensation thresholds for plan contributions. That restriction is now gone, and their compensation will now be factored into the plan contribution calculations.
Finally - at least for purposes of this very broad brush summary - if you're either the owner or a beneficiary of a so-called "Section 529 qualified tuition program account" (I guess they couldn't come up with an acronym), you should know that it can now also be used to cover the costs of many apprenticeship programs, including the fees, books, supplies and equipment required for participation. The good news here is that maybe we'll all be able to find more plumbers and electricians in the years ahead.
Posted 02/06/2020 - Misc.