Preface: The SECURE legislation — standing for “Setting Every Community Up for Retirement Enhancement” — puts into place numerous provisions intended to strengthen retirement security across the country.
NEW Tax Legislation Update: The Secure Act Tax Legislation
The Setting Every Community Up for Retirement Enhancement Act– A.K.A. the SECURE Act, has been under tax law construction for approximately three years. The legislation train connected to the increased spending bill to keep the government open for business pulled quietly away from the station in the recent days with new and improved retirement tax saving features.
SECURE Act Highlights:
Employer Credit for New Plan Start-ups: Before the SECURE Act, employers were at liberty to claim a tax credit equal to fifty percent of the start-up costs of a qualified retirement plan for employees, up to a maximum of $500. The SECURE Act increases this new plan credit limit to the greater of $500 or the lesser of $250 multiplied by the number of non-highly compensated employees eligible to participate in the plan or $5,000.
Required Retirement Plan Minimum Distributions: Under long-standing rules, participants in qualified retirement plans and IRAs were obligated to start taking required minimum distributions in the year following the year they turned age 70½. The SECURE Act pushes up the ceiling on the required minimum distribution age for retirement plan distributions to age 72 from 70½.
Improved 401(k) safe harbor rules: The tax law revision includes changes legislated to give simplicity, and improve employee retirement savings safeguard. One example is the new legislation eliminates the safe harbor notice requirement, while keeping the requirement permitting employees to make or change a 401(k) election at least once a year.
College Student Retirement Benefits: Although non-tuition expenses received by graduate and postdoctoral students didn’t qualify as earned compensation previously, therefore the funds could not be used for IRA contributions. The new tax law includes qualifying these earnings while additionally structuring penalty-free withdrawals of up to $10,000 from 529 education-savings plans for the repayment of qualifying student loans
IRA Age Limits on Contributions: Before the SECURE Act, retirement savers were not permitted to contribute to a traditional IRA once they attained the age of 70½. With the SECURE Act, this restrictive feature has clearer skies potential.
Automatic Retirement Plan Enrollment Credits: To improve employee participation in qualified retirement plans, the new law creates an additional credit of up to $500 per year for businesses that provide new 401(k) and SIMPLE plans with an automatic enrollment feature. This credit is in additional to the start-up cost credit for purposes encouraging employee automatic participation in the qualified retirements plans.
Part-time Workers Inclusion: Before the SECURE Act, small businesses did not need to include part-time workers with less than less than 1,000 payroll hours per year from participating in 401(k) plans. The SECURE Act changes this feature for retirements plans to include all employees who have completed either one year at least 1,000 payroll hours or three consecutive years of at least 500 hours of service.
Family Planning Early Withdrawals: Current tax laws exempt some retirement plan distributions from retirement plans from a 10% tax penalty on early savings withdrawals prior to age 59½. The SECURE Act improves these qualifying withdraws to include qualified child birth or adoption expenses. The tax law now allows penalty-free withdrawals up to $5,000 from retirement plans for families with either a birth or adoption of a child.