The SECURE Act Makes Changes to Retirement Plan Rules for 2020

The SECURE Act changes age restrictions on contributions to retirement plans and required minimum distribution rules.

On December 20, 2019, a new bill known as the SECURE Act was signed into law. The new law contains many changes to the existing retirement plan contribution and distribution rules described in Nolo's book IRAs, 401(k)s & Other Retirement Plans: Strategies for Taking Your Money Out. Here are the key changes, which take effect on January 1, 2020.

  • Through the end of the year 2019, individuals may not contribute to a traditional IRA if they are older than 70 1/2. That restriction is eliminated for all contributions made for tax year 2020 and beyond. (Roth IRA contributions have never been subject to age restrictions.)
  • Currently, the age at which you must begin taking required distributions from your retirement plan is 70 1/2. That age will rise to 72 for all those who have not yet attained age 70 1/2 by December 31, 2019.
  • The new law allows penalty-free distributions from retirement accounts for expenses related to the birth or adoption of a child. The lifetime distribution limit is $5,000.
  • The new law provides for disaster relief, allowing penalty-free distributions from retirement accounts (up to $100,000) for expenses related to disasters that occurred after 2017 and before February 18, 2020.
  • The new law curtails the so-called "stretch provision" for inherited IRAs. Here are the details.
    • All designated beneficiaries of a retirement plan, except for certain "eligible designated beneficiaries," must distribute all of the funds in a retirement plan account within 10 years of the owner's death.
    • Certain eligible beneficiaries are not subject to this 10-year rule, and the old distribution rules will apply to them. Eligible beneficiaries include:
      • a spouse
      • a disabled individual
      • an individual who is no more than ten years younger than the owner
      • a minor child of the owner (but when the minor child reaches the age of majority, the 10-year rule will apply from that date).
    • When the eligible beneficiary dies, his or her beneficiary will be subject to the 10-year rule, regardless of who that beneficiary is.
    • The new restrictions for stretch IRAs apply to retirement plans of owners who die after December 31, 2019. Beneficiaries who inherited plans in years before 2020 are grandfathered and may continue to use the old rules.

The official name of the law is the Setting Every Community Up for Retirement Enhancement Act of 2019.

Effective date: January 1, 2020