The recently passed spending bill to keep the federal government operating included a last minute addition: the SECURE Act, almost identical to the bill passed by a nearly unanimous House in May 2019. Effective dates were not changed, so many changes will be effective January 1, 2020.
One change that all plans and some participants will have to deal with immediately are the revisions to required minimum distributions (RMDs), which also apply to IRAs. Participants who turned age 70 1/2 or died in 2019 remain subject to the familiar existing rules. But after 2019, required distributions can be delayed until the participant reaches age 72.
- This creates a gap over the next two years during which participants who otherwise would have started distributions can now defer them.
To pay for this gap, most non-spouse beneficiaries will now have to receive distributions within 10 years after the participant’s death, rather than being able to stretch distributions out over their lifetimes. (There are exceptions for minor children, disabled or chronically ill beneficiaries (and trusts for them), and beneficiaries not more than 10 years younger than the participant.) Since this would substantially bunch up income for beneficiaries, more participants may be interested in converting their pre-tax plan accounts to Roth accounts so that beneficiaries will not be taxed.
- Plans that have not yet adopted Roth conversion features may be under pressure to do so.
One welcome change in the law is a clarification of when amendments to plans are required. Plan amendments to comply with the law generally will not be required until December 31, 2022, although the plan must operate in compliance from the effective date.