Business Times of Edmond, Oklahoma March 2020 - Page 24
L edger L ines
The SECURE ACT Contains a Host of Tax Changes
he SECURE Act, or Setting Every
Community Up for Retirement
Enhancement Act, recently became
law. This new law may affect how you are
taxed and how you plan for your retirement.
Many of the provisions go into effect in 2020.
There are various new provisions affecting
individual taxpayers and employer plan
sponsors. These are summarized below:
Repeal of the maximum age for
traditional IRA contributions.
Starting in 2020, the new rules allow an
individual of any age to make contributions
to a traditional IRA, if the individual has
compensation such as earned income from
wages or self-employment.
Required minimum distribution age
raised from 70½ to 72.
For distributions required to be made
after Dec. 31, 2019, for individuals who
attain age 70½ after that date, the age
at which individuals must begin taking
distributions from their retirement plan or
IRA is increased from 70½ to 72.
Partial elimination of stretch IRAs.
For deaths of plan participants or IRA
owners occurring before 2020, beneficiaries
(both spousal and non-spousal) were generally
allowed to stretch out the tax-deferral
advantages of the plan or IRA by taking
distributions over the beneficiary’s life or life
However, for deaths of plan
participants or IRA owners beginning in
2020, distributions to most non-spouse
March 2020 | The Business Times
beneficiaries are generally required to be
distributed within 10 years following
the plan participant’s or IRA owner’s death.
So, for those beneficiaries, the “stretching”
strategy is no longer allowed. Spouses and
disabled individuals are excepted from the
Section 529 education savings plans can
now pay for apprenticeships and student
A Section 529 education savings plan
(a 529 plan, also known as a qualified
tuition program) is a tax-exempt program
established and generally maintained by a
state. Any person can make nondeductible
cash contributions to a 529 plan on behalf
of a designated beneficiary. The earnings
on the contributions accumulate tax-free.
Distributions from a 529 plan are excludable
up to the amount of the designated
beneficiary’s qualified higher education
For 529 plan distributions made
after Dec. 31, 2018 (the effective date is
retroactive), tax-free distributions can be
used to pay for fees, books, supplies and
equipment required for the designated
beneficiary’s participation in an
apprenticeship program. In addition, tax-free
distributions (up to $10,000) can
pay the principal or interest on a qualified
education loan of the designated beneficiary,
or a sibling of the designated beneficiary.
Kiddie tax changes for Gold Star children
There had been concern that the Tax
Cuts and Jobs Act of 2017 changes unfairly
increased the tax on certain children,
including those who were receiving
government payments (i.e., unearned
income) because they were survivors of
deceased military personnel (AKA “Gold
Star” children), first responders, and
emergency medical workers.
The new rules enacted on Dec. 20, 2019,
repeal the kiddie tax measures that were
added by the TCJA. So, starting in 2020
(with the option to start retroactively in
2018 and/or 2019), the unearned income of
children is taxed under the pre-TCJA rules,
and are no longer taxed at trust/estate rates.
Penalty-free retirement plan withdrawals
for expenses related to the birth or
adoption of a child.
Generally, a distribution from a
retirement plan must be included in income.
And, unless an exception applies (for
example, distributions in case of financial
hardship), a distribution before the age of
59-1/2 is subject to a 10% early withdrawal
penalty on the amount includible in income.
Starting in 2020, plan distributions (up
to $5,000) that are used to pay for expenses
related to the birth or adoption of a child
are penalty-free. That $5,000 amount applies
on an individual basis, so for a married
couple, each spouse may receive a penalty-free
distribution up to $5,000 for a qualified birth
or adoption. Additionally, there are further
provisions related to making specifically
identified forms of non-taxable compensation
eligible for the earned income required to
make IRA contributions.