The following overview of the SECURE Act is adapted from a summary by Thomson Reuters’ RIA Checkpoint.

Congress recently passed and the President signed into law, the Setting Every Community Up for Re- tirement Enhancement Act (the“SECURE Act”), landmark legislation that may affect how you plan for retirement. Most of the provisions were effective on January 1, 2020, which means now is the time to consider how these new rules may affect your tax and retirement-planning situation.

The following is a look at some of the key provisions of the SECURE Act affecting individuals.

Repeal of the maximum age for traditional IRA contributions.  Before 2020, traditional IRA contributions were not allowed once an individual attained age 70½. Beginning in 2020, the new rules allow an individual of any age to make contributions to a traditional IRA, as long as the individual has compensation, which generally means earned income from wages or self-employment.

Required minimum distribution age raised from 70½ to 72. Prior to 2020, retirement plan participants and IRA owners were generally required to begin taking required minimum distributions (“RMDs”), from their plan by April 1 of the year following the year they reached age 70½. The age 70½ requirement was first applied in the retirement plan context in the early 1960s and, until recently, had not been adjusted to account for increases in life expectancy. Beginning in 2020, the age at which an individual must begin taking distributions from their retirement plan or IRA is increased from 70½ to 72. Those who turned 70½ before January 1, 2020 will take their RMDs as required prior to the SECURE Act.

Partial elimination of stretch IRAs.  For deaths of plan participants or IRA owners occurring before 2020, beneficiaries (both spousal and nonspousal) 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 expectancy (a “life expectancy payout” or “stretch").

However, for deaths of plan participants or IRA owners occurring on or after January 1, 2020 (later for some participants in collectively bargained plans and governmental plans), distributions to most nonspouse 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.

Exceptions to the 10-year rule are allowed for distributions to (1) the surviving spouse of the plan participant or IRA owner; (2) a child of the plan participant or IRA owner who has not reached majority; (3) a chronically ill individual; and (4) any other individual who is not more than 10 years younger than the plan participant or IRA owner. Those beneficiaries who qualify under this exception may generally still take their distributions over their life expectancy (as allowed under the rules in effect for deaths occurring before 2020).

Expansion of Section 529 education savings plans. A Section 529 education savings plan (also known as a qualified tuition program) is a tax-exempt program established and maintained by a state, or one or more eligible educational institutions. 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. Dis- tributions from a 529 plan are excludable up to the amount of the designated beneficiary’s qualified higher education expenses.

Before 2019, qualified higher education expenses did not include the expenses of registered apprentice- ships or student loan repayments. However, for distributions made after Dec. 31, 2018 (the effective date is retroactive), tax-free distributions from 529 plans can now 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, per individual) are allowed to pay the principal or interest on a qualified education loan of the designated beneficiary, or a sibling of the designated beneficiary.

Kiddie tax changes. In 2017, Congress passed the Tax Cuts and Jobs Act (TCJA, P.L. 115-97), which made changes to the so-called "kiddie tax," which is a tax on the unearned income of certain children. Before enactment of the TCJA, the net unearned income of a child was taxed at the parents' tax rates if the parents' tax rates were higher than the tax rates of the child.

Under the TCJA, for tax years beginning after December 31, 2017, the taxable income of a child attributable to net unearned income is taxed according to the brackets applicable to trusts and estates. Children to whom the kiddie tax rules apply and who have net unearned income also have a reduced exemption amount under the alternative minimum tax (AMT) rules.

There had been concern that the TCJA 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 ("gold star children"), first responders, and emergency medical workers.

The new rules 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 not at trust/estate rates. And beginning retroactively in 2018, the new rules also eliminate the reduced AMT exemption amount for children to whom the kiddie tax rules apply and who have net unearned income.

Penalty-free retirement plan withdrawals for expenses related to birth or adoption. 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 59½ is subject to a 10 percent 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 ($10,000 per couple) for a qualified birth or adoption.

If you have questions about the SECURE Act and other changes in the law involving tax, retirement plans and estate planning, please contact any attorney at Duggan Bertsch you know or any member of our Tax or Estate & Wealth Planning Practice Groups.

This article is provided for information purposes. It does not contain legal advice or create an attorney- client relationship and is not intended or written to be used and may not be used by any person for the purpose of avoiding penalties that may be imposed under federal tax laws. The information provided should not be taken as an indication of future legal results; and any information stated should not be acted upon without consulting legal counsel.