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Changes to US Retirement System after the SECURE Act

Changes to US Retirement System after the SECURE Act


The House advanced broader Spending Bill including the SECURE ACT OF 2019 to the Senate, and then to the President for approval by Dec. 20. The law will create sweeping changes that will immediately affect retirees and savers.

  Secure Act Changes  
  1. New income categories qualify for IRA contributions
  2. The scope of reasons for penalty-free early withdrawals expanded
  3. Maximum Age for Traditional IRA contributions repealed
  4. Increase of age for starting to take Required Minimum Distributions (RMD)
  5. Sec 529 Benefits expanded to cover homeschooling and repayment of education loans
  6. Reinstatement of Tax Benefits for Volunteer Firefighters and First Medical Responders

Increase in Age for Required Minimum Distributions (RMD)

Under current law, participants are generally required to begin taking distributions from their retirement plan at age 70 ½. However, the age of 70 ½ was first applied in the retirement plan context in the early 1960s and has never been adjusted to take into account increases in life expectancy. The bill increases the required minimum distribution age from 70 ½ to 72.

Modifications to Required Minimum Distribution Rules

The five-year rule for taking distributions from an inherited IRA now changed to a 10-year rule. Required minimum distributions to heirs are generally required to be distributed by the end of the tenth calendar year following the year of the employee or IRA owner’s death instead of the fifth year under the existing rules.<

Repeal of Maximum Age for Traditional IRA Contributions

The legislation repeals the prohibition on contributions to a traditional IRA by an individual who has attained age 70½. As Americans live longer, an increasing number continue employment beyond traditional retirement age.

Penalty-free Withdrawals from Retirement Plans for Individuals in Case of Birth or Adoption

The legislation provides for penalty-free withdrawals from retirement plans for any “qualified birth or adoption distributions.”

Certain Taxable Non-Tuition Fellowship and Stipend Payments Now Treated as Compensation for IRA Purposes

Stipends and non-tuition fellowship payments received by graduate and postdoctoral students were not  treated as compensation and could not be used as the basis for IRA contributions. The legislation removes this obstacle to retirement savings by taking such amounts that are includible in income into account for IRA contribution purposes.

Treating Excluded Difficulty of Care Payments as Compensation for Determining Retirement Contribution Limitations

Many home healthcare workers do not have taxable income because their only compensation comes from “difficulty of care” payments which are exempt from taxation. Because such workers do not have taxable income, they cannot save for retirement in a defined contribution plan or IRA. This provision would allow home healthcare workers to contribute to a plan or IRA. Tax exempt difficulty of care payments will be treated as compensation for purposes of calculating the contribution limits to defined contribution plans and IRAs.

Benefits for Volunteer Firefighters and Emergency Medical Responders

The legislation reinstates for one year the exclusions for qualified State or local tax benefits and qualified reimbursement payments provided to members of qualified volunteer emergency response organizations and increases the exclusion for qualified reimbursement payments to $50 for each month during which a volunteer performs services.

Expansion of Section 529 Plans

The legislation expands 529 education savings accounts to cover costs associated with registered apprenticeships; homeschooling; up to $10,000 of qualified student loan repayments (including those for siblings); and private elementary, secondary, or religious schools.


Ines Zemelman, EA
Founder of TFX