As you may already know, the SECURE Act – which stands for “Setting Every Community Up for Retirement Enhancement” – was recently signed by President Trump, and the purpose of the legislation is to bolster retirement security throughout the nation. The law contains many provisions that can make saving for retirement easier and more accessible for many individuals.
Some of the key features affecting retirement plans are:
- Required minimum distributions (RMD): With Americans now living and working longer, the RMD age is now 72. The new age requirement is effective for individuals who turn 70-1/2 in 2020. If an employee is currently taking RMDs, s(he) will continue to do so. Previously, individuals had to take RMDs after turning age 70-1/2.
- Part-time workers: Long tenured employees who completed at least 1000 years, or 500 hours per year over three (3) consecutive years are now required to be made plan-eligible. This rule goes into effect in 2021. Previously, employees who worked less than 1000 hours were not required to take part in the plan.
- Withdrawals: An employee can withdraw up to $5,000 upon the birth or adoption of a child without the 10 percent penalty those younger than 59-1/2 would pay. The withdrawal, which is subject to tax, can be repaid to a retirement account.
- Auto enrollment: To encourage savings, auto enrollment contributions cap has now increased to 15 percent. The cap previously was 10 percent.
- Safe harbor: Plans can now be amended to a non-elective safe harbor plan with 3% qualified non-elective contributions (not matching safe harbor contributions) at any time up to 30 days prior to the close of the plan year. The amendment may also be made within 30 days of the end of the plan year; however, in that case, a 4% qualified non-elective contribution is required in place of the 3% contribution in that year. Previously, an existing plan can only add safe harbor feature at the beginning of the plan year.
- Tax credit: Small business owners can now receive tax credit of up to $5,000 for sponsoring a retirement plan. Previously, the maximum tax credit was $500 per year for each of the first three (3) years of the plan.
- IRS Form 5500: The penalty for delinquent filing of Form 5500 annual return/report has increased ten-fold, from $25 per day up to $15,000, to now $250 per day up to $150,0000 maximum.
Be assured that we will continue to stay on top of this and will keep you posted.
If you have any questions, please do not hesitate to call or e-mail us.