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Retirement and 529 Changes from the SECURE Act

Last week Congress passed the Setting Every Community Up for Retirement Enhancement (SECURE) Act, which makes a list of changes to retirement account rules.

What follows is a brief explanation of some of the points that are likely to affect many readers. To be clear, there’s a lot of material that I will not be covering here. If you’re interested in reading the Act itself, you can find it here.

Traditional IRA Age Limit

For tax years 2020 and beyond, there will no longer be an age limit for making contributions to traditional IRAs.

Retirement Account RMDs

For anybody turning age 70.5 in 2020 or later, RMDs will begin with the year in which you reach age 72 rather than the year in which you reach age 70.5.

Retirement Account Distributions for Childbirth/Adoption

For tax years 2020 and beyond, there will be a new exception to the 10% penalty for early distributions from retirement accounts. Specifically, distributions of up to $5,000 will be penalty-free if made during the 1-year period beginning on the date on which your child is born or on which you legally adopt an eligible adoptee.

Relevant points about the new childbirth/adoption distributions:

  • “Eligible adoptee” means anybody under age 18 or who is physically or mentally incapable of self-support.
  • The $5,000 limit is per childbirth/adoption.
  • If you are married, each spouse can take such a penalty-free distribution.
  • You can put the money back into the plan/account later, and such a contribution would be treated as having made a direct trustee-to-trustee transfer of the distribution back into the plan. This means, firstly, that the contribution wouldn’t count against your normal contribution limit for the year. In addition though, in the case of such trustee-to-trustee transfers, the distribution isn’t taxable and the contribution is not deductible. But in this case the contribution could be coming years after the distribution — well after you would have already had to report the distribution as income. I’m interested to see what the IRS offers as guidance here.

Distribution Rules for Inherited Retirement Accounts

So-called “stretch IRA” distribution rules have mostly been eliminated. Specifically, if the owner of an IRA/401(k)/403(b) account dies in 2020 or later, then the beneficiary of the account will have to fully distribute the account within 10 years of the original account owner’s death.

Relevant points about the above change:

  • The new rule doesn’t apply to any designated beneficiary who is an “eligible beneficiary.” Eligible beneficiaries would be: the surviving spouse of the original account owner, a minor child of the original account owner, anybody who is disabled or chronically-ill (per the definition found in IRC 7702B(c)(2)), or any designated beneficiary who is not more than 10 years younger than the original account owner.
  • When the new rule does apply, the new rule is simply that the account must be distributed within 10 years. The distributions do not have to occur evenly over those 10 years. (There could be no distributions for the first 9 years, for instance.)

529 Plans

With regard to 529 plans, “qualified higher education expenses” will now also include:

  1. Fees, books, supplies, or equipment required for apprenticeship programs; and
  2.  Up to $10,000 used to repay student loans for the account beneficiary, plus another $10,000 for repayment of student loans for each of the beneficiary’s siblings.

Of note: if a 529 distribution is used for repayment of student loan interest, that same interest cannot be deducted under the student loan interest deduction.


Defined contribution plans (e.g., 401(k) or 403(b) plans) will have to start providing a disclosure to participants about how much lifetime income could be provided if the entire account balance were used to purchase a single lifetime annuity or a qualified joint and survivor annuity for the employee and the employee’s surviving spouse.

In addition, the new law makes some changes that essentially make it easier for defined contribution plans to offer annuities as options to plan participants.

…And a lot of other stuff

Just to reiterate, what I’ve covered here is simply the collection of changes that I think are most likely to affect many of you. The Act makes a long list of changes that I haven’t covered here. Again, if you’re interested in reading the Act itself, you can find it here. (Scroll all the way down to Division O in the document.)

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