Dear Clients,


With the recent legislative changes we wanted to keep you well informed.  Please feel free to contact us should you have any questions.


SECURE Act Key Points

Happy New Year! 2019 was a fantastic year here at WFA, for both the stock and bond markets and most importantly for our clients’ portfolios! On December 20, 2019 President Trump signed the unwieldly worded Setting Every Community Up for Retirement Enhancement (SECURE) Act. The new law which took effect January 16, 2020, has important provisions with widespread effects that will undoubtedly affect virtually all of our clients to varying degrees. The following bullet points summarize the changes created by the SECURE Act and how those changes may affect your financial plan. Please contact us if you would like further information or to schedule a financial review.


  • Previously the mandated age for required minimum distributions (RMD) from IRA accounts was 70.5 years, with the requirement to take that first distribution by no later than April 15th of the following year. With passage of the SECURE Act anyone not yet 70.5 years of age as of Dec 31, 2019, is now allowed to defer RMDs until April 15th of the year after they turn 72. Unfortunately, anyone who turned 70.5 in 2019 is not eligible to delay RMD distributions and must abide by the old rule.


  • Parents can withdraw up to $5K from a retirement account within a year of a child’s birth or adoption with no 10% penalty.


  • Parents can withdraw up to $10K from a 529 plan to pay down student loan interest/principal tax free and without penalty. However, any applicable student loan interest deductions on an individual’s tax returns would be disallowed to the extent 529 proceeds are used to make interest payments.


  • Non-spouse beneficiaries who inherit Roth and traditional IRA accounts after Dec 31, 2019 must distribute funds within 10 years instead of the previous convention based on an individual’s lifetime distribution schedule. Surviving spouses will still be able to make distributions over their lifetimes with no change from prior rules. Minor children up to the age of 18 to 21, depending on the state (age 18 in California and Ohio) and up to age 26 if still in school are also an exception, although the 10-year distribution requirement is only delayed until the age of majority is reached. Importantly, inherited accounts must be liquidated over 10 years, the beneficiary does not have to take annual distributions and can wait until the 10th year to distribute the entire account (although doing so would clearly create a large potential tax bill in that year.)

This is probably the most significant change; for example, under prior rules, grandparents could leave IRAs to their grandchildren who could take distributions over the course of their lifetime, conceivably stretching the IRA over decades; this is no longer the case. The reasoning for the change is that IRAs are meant to be a retirement savings vehicle for account owners and their spouses and not as a wealth transfer mechanism.

  • The SECURE Act will make it easier for employers to offer annuities in 401K plans. Workers should benefit from their employer’s ability to obtain lower group prices on annuity contracts.


  • If an employee purchases an annuity in a 401K and the employer subsequently drops it, the law will allow the employee to roll over their annuity contract to an IRA. The employee could continue contributing to the contract up to applicable IRA limits.


  • Starting in 2024, employers offering a 401K will be required to allow part-time employees who have worked >500 hours per year for at least 3 consecutive years to participate in the company 401K plan. However, employers will not be required to provide matching contributions for these employees.


  • 401K plan sponsors will be required to estimate how much monthly lifetime income their participant account balances may support.  Some plans already supply this information on a voluntary basis but going forward the estimate must be made on workers 401k statements one year after regulators finalize those assumptions.


  • There will no longer be an age limit on IRA contributions. Previously after age 70.5 contributions were not allowed even if the individual is still earning income. Non-working spouses can continue to benefit as well as full IRA contributions can continue (subject to income limitations) after age 70 if their partner continues to generate earned income.


  • Currently qualified charitable contributions are allowed for those 70.5 and older directly from IRAs. This will not change with the increase in the RMD start age of 72.


  • Folks that have listed their trust as beneficiaries of their IRAs should meet with an estate attorney to potentially revise their trusts as the distribution schedule of the deceased or oldest beneficiary depending on how the trust is structured, can no longer be stretched over more than 10 years.


Here at WFA Wealth Managers we always strive to put our client’s interest first! We would like to thank you for your continued confidence as we navigate a course for your investments throughout this new year and beyond. Thank you!