The SECURE Act and How It Impacts IRAs

 Plus other things you should know. 

This past December Congress passed the SECURE Act, Setting Every Community Up for Retirement Enhancement. The legislation had been in the works for a few years and is the first major retirement legislation that we’ve seen in about a decade or more. Changes have been made to IRA contribution limits, required minimum withdrawals and how account holders pass them to beneficiaries. 

 Contribution age restrictions removed. 

The restriction prohibiting contributions to a traditional IRA post age 70 has been removed.1 Anyone with eligible earned income can contribute. Eligible compensation is salaries, wages, tips, bonuses, commissions, self-employment income and professional fees. With many people choosing to work longer, even as an occasional consultant or advisor, this is welcome news. 

RMD age increased. 

Required Minimum Distributions can be delayed a bit longer. You can delay beginning taking RMDs until age 72.2 But, if you turned 70 ½ in 2019 you will have to continue your withdrawals. The CARES Act (Coronavirus Aid, Relief, and Economic Security Act) has additional temporary provisions to waive RMDs.3 Contact me for more details. 

Limitations on stretch IRAs 

Another provision of the act may cause you to schedule an appointment with your estate planning attorney. A technique known as the “stretch IRA” has become deeply restricted. Previously, your beneficiary could stretch withdrawals from the inherited IRA over their life expectancy. Some still can. 

The law creates a new class of beneficiaries called eligible designated beneficiaries or EDBs.4 This group includes 

 Surviving spouses. 

 Minor children until age of majority. Then the plan must be depleted within 10 years. 

 Beneficiaries who meet IRS rules as disabled. 

 Chronically ill beneficiaries 

 Those not more than 10 years younger than the IRA owner. 

Other beneficiaries, including grandchildren, must deplete the IRA within ten years of inheriting it. There is no scheduled RMD but it can create a large tax bill in year 10 depending on how withdrawals are handled. Roth conversions have become a hot topic of conversation to help beneficiaries avoid large tax bills. With a Roth conversion you convert a traditional IRA to a Roth and pay the taxes due in the year of conversion. You and your beneficiary after you make withdrawals tax free. 

Qualified Charitable Distributions. 

Changes were made to Qualified Charitable Distributions.5 A QCD is a distribution from your IRA to a qualified charity. Since the money flows directly from your IRA to the charity it is not included in your AGI. This is an excellent move for someone who likes to contribute to charities but does not itemize. New tax laws limits itemized deductions for many eliminating the financial benefit of giving. 

QCDs count toward RMDs. Gifting money from your IRA will also lower your future RMD and lower your taxable income which impact Medicare premiums and have other taxable considerations. Be careful, though. Since the contribution age limit has been removed under SECURE, contributing to a traditional IRA and making a QCD can collide in an unfavorable way. Check with your tax advisor if you plan to do both in the same year. 

Other provisions. 

In addition to significant IRA changes, several other provisions were included. New parents can take up to $5000 from a 401(k) plan without penalty for costs related to the birth of a child or for adoption.6 This should be a last resort as taxes will be due on the withdrawal the year it is taken. That tax bill increase will come at the same time as the additional costs of a new child. 

Changes have been made to 529 Plans, too. Up to $10,000 from a plan can be used to pay off student loans including a student loan of a sibling of the beneficiary of the plan as well, at the account holder’s direction.7 The act modifies Code Section 529 to include expenses related to qualified apprenticeship programs. The program must be a National Apprenticeship Act certified apprenticeship. Such programs are certified by the Secretary of Labor.8 

Great news for small business owners. 

The act provides a safe harbor for plan sponsors who add lifetime income options or annuities to a defined contribution plan. It lays out guidance on evaluating insurance companies related to their ability to meet obligations and does not require that the lowest cost contract be chosen. As with any fiduciary duty, the plan sponsor must have a prudent reason for their selection. 

Tax credits for a small business that starts a defined contribution plan have been increased and Pooled Employer Plans (PEPs) were created.9 Any employer can join a plan. The National Law Review writes “The Act eases some of the burdens for employers associated with sponsoring a retirement plan.”10 If you are a small business owner contact me about how a retirement plan can benefit you and your business. 

As we continue with our challenge of COVID-19 I am monitoring investment markets and carrying out my duty to you, my clients. I wish you and your family safety and health as we work our way through this unusual time. As always, I’m available at

1 Section 107 (a) SECURE Act 

2 Internal Revenue Code § 401(a)(9)(C)(i)(I) 

3 Internal Revenue Service Notice 2020–51 Guidance on Waiver of 2020 Required Minimum Distributions 

4 The Legal Intelligencer, Understanding Eligible Designated Beneficiaries Under the SECURE Act 

Matthew D’Emilio and Jennifer Smith | February 11, 2020 

5 Section 107 (b) SECURE Act 

6,9 Society for Human Resource Managers, SECURE Act Alters 401(k) Compliance Landscape, Stephen Miller | January 20, 2020 

7 Section 302(b)(1) SECURE Act 

8 Section 302(a) SECURE Act 

10 The National Law Review, What Employers Should Know About the SECURE Act’s Lifetime Income Provisions, Michelle Capezza | Jan 15 2020 

Securities and advisory services offered through Madison Avenue Securities LLC (MAS) Member FINRA/SIPC and a Registered Investment Advisor; MAS and PFS Wealth Management Group are not affiliated companies. MAS does not provide legal and tax advice. Seek competent legal and tax counsel for your specific needs