Remembering the SECURE Act—and moving past a financial Groundhog Day

Written by Julie Yanez

The Setting Every Community Up for Retirement Enhancement Act of 2019, better known as the SECURE Act, was set in place in December 2019, as part of a larger government spending package of end-of-year appropriations and tax measures. The provisions are intended to strengthen retirement security across the country. Here we explain how that may impact your retirement.

Time is marching on but I seem to be stuck on March 15, 2020. That seems to be my Groundhog Day. What a year this week has been. The first days following March 15th, new words began to slip into my lexicon like self – quarantine, flatten the curve or where is my hand sanitizer. My world changed both personally and professionally like the rest of the globe.

Professionally, Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was my main focus. I was answering a myriad of questions about COVID Related Distribution or Paycheck Protection Program. It seemed like I forgot about what had happened prior to March 15th which is upsetting because the Setting Every Community Up for Retirement Enhancement Act (SECURE Act) was passed on December 20, 2019–just two 2.5 months before my Groundhog Day. It contained key provisions like

  • A Small Employer Startup Credit under Section 104 which increased the amount of the startup credit
  • Adding a new Distributable Event under Section 113
  • Redefined the Required Minimum Distribution Age under Section 114.

What great provisions to promote retirement plans through expansion and making retirement saving accessible to participants. Let’s relive the past and take a deeper dive.

Small Employer Startup Credit under Section 104

I don’t know about you but I always craved extra credit in school and now small employers can take advantage of some extra savings. The change became effective December 31, 2019. It modified the old law limit of lesser of 50% of startup cost or $500 to the lesser of 50% of startup costs or, greater of $500 or the lesser of $250 * Non-highly Compensated Employees (NHCEs) or $5,000. Now, the math is more complicated and confusing.

Let me walk you through the calculation.  This example assumes a plan with 30 NHCEs and startup costs of $9,000.  

  • Step A: # of NHCES (30) * 250 = $7,500
  • Step B: Lesser of A or $5,000 = $5,000
  • Step C:  Greater of B or $500 = $5,000
  • Step D: 50% of start-up costs ($9000) = $4,500
  • Step E:  Lesser of C or D = $4,500 (This is the amount of the credit.)

The credit can be claimed by an employer who has not maintained a plan in the past 3 taxable year. It can be used for qualified plans under IRC 401(a), annuity plans under IRC 403(a), SEP and Simple IRA but not 403(b) and 457(b). Adding a 401(k) feature to a profit-sharing plan generally counts along with joining a MEP/PEP. The tax credit savings applies for 3 years.

New Distributable Event under Section 113

Congratulations, it’s a boy. I was lucky to hear those words twice. Today, there is a new Distributable Event which helps to defray childbirth or adoption expenses. The maximum is $5,000 per individual which is not subject to 10% penalty tax and must be taken within a 1-year period following birth or adoption. This amount can also be repaid. This is an optional plan provision. So, the plan document needs to amended first.

Increased Required Minimum Distribution Age under Section 114

For years, I calculated 70.5 distributions, but it was changed to 72 after December 31, 2019. If you were born before July 1, 1949, there is no change. For those born after June 30, 1949, there is a change. The distribution is not required until age 72. However, if you want don’t want the increase the change is not technically required.

How Can We Help

These changes are only a small sample of the almost 30 new provisions of the SECURE Act. With so many rules of your retirement planning changing, knowing exactly what is right for you can be difficult. That’s why RSG puts so much emphasis on keeping you educated and making year end analysis a priority. We’re here to help you understanding the new SECURE Act and how will impact you. When it comes to keeping your retirement plan in tip top financial health, it’s important look beyond Groundhog Day.