On December 20, 2019, President Trump signed the Setting Every Community Up for Retirement Enhancement (“SECURE”) Act. The new rules will allow individuals to save more for retirement and influence how they can use the funds over time. These changes should have an immediate impact on plan sponsors and participants given some of the provisions are effective January 1, 2020. Here are some of the highlights:
- Required Minimum Distributions Age Increased – The minimum age was increased from 70 ½ to 72 which will allow retirement funds to grow for an additional year and a half. Note: This does not change 2019 required minimum distributions.
- No Age Restrictions on IRA Contributions – Individuals can continue to a traditional IRA if they work into their 70s and beyond.
- Part-Time Employees Eligible for 401(k) Plans – Typically employees need to work at least 1,000 hours before they are eligible to participate in their employer sponsored 401(k) plan. However, starting in 2021, the new law guarantees eligibility for employees that work at least 500 hours per year for three consecutive years. The employee must also be at least 21 years of age by the end of the three-year period.
- Increases in the Automatic Enrollment Safe Harbor Maximum – The cap for the automatic enrollment salary deferral is increased from 10% to 15% of compensation after the participants initial year.
- Small Employer Assistance – The retirement plan start-up tax credits for small businesses is increased form $500 to $5,000, a new $500 tax credit is provided for those small businesses that include automatic enrollment and the rules make it easier for small businesses to join together to provide retirement plans for their employees. Unrelated employers can join together in a multiple-employer plan and have just one plan administrator which should provide for greater leverage and pricing for the employers.
- Section 529 Plans – Up to $10,000 held in a Section 529 plan may now be used to pay off student debt.
If you have questions or need assistance with the structure of your 401(k) plan, and whether this rule could benefit your company, Barnes Dennig can help. For additional information please call us at 513-241-8313 or click here to contact us. We look forward to speaking with you soon.