Listed below are some questions and answers about the SECURE Act passed and signed into law in December 2019. This is not meant to provide tax or legal advice but to provide general information to both our existing clients and those interested in learning more about Prato Capital’s planning-based strategies.

Please call us for more details or if you have any questions.

  • When are Required Minimum Distributions (RMD) required now?
    • If you turn 70 ½ after 2019, RMDs start at 72 years old now.
    • If you turned 70 ½ in 2019 or before, the requirements have not changed, and you are required to start taking RMDs.
  • How has the SECURE Act changed inherited IRAs?
    • IRAs inherited from people who pass after 1/1/2020 can no longer be ‘stretched’ over the inheritor’s lifetime. Instead, under the SECURE Act, an inherited IRA must be distributed in full within 10 years and is subject to income taxes. Inherited IRAs from people who passed in 2019 or before are grandfathered into the old rules of a lifetime stretch.
    • There are some exceptions to this change: including surviving spouses, disabled or chronically ill beneficiaries, and minor children (the 10-year rule starts when they reach the age of maturity) and beneficiaries who are not more than 10 years younger than the decedent.
    • This change can have a significant tax effects on whoever inherits an IRA now.
  • I am working later in life now, can I contribute to an IRA?
    • Individuals may now contribute to a traditional IRA past 70 ½ as long as they are still earning income.
    • This takes effect for the 2020 tax filings, not the 2019 returns.
  • As a small business owner, is this a good time to start a retirement plan for my employees? Yes, it is.
    • Small-business owners can receive up to a $5000 tax credit for starting a retirement plan.
    • Small business owners can more easily join together now forming Multiple Employer Plans, unrelated businesses joining together to form a defined contribution plan. This will reduce costs and administration fees for small businesses.
  • I work part-time, can I participate in my company’s 401k?
    • The SECURE Act now requires employers maintaining a 401(k) plan to offer one to any employee who worked more than 1,000 hours in one year, or 500 hours over 3 consecutive years.
  • Can I access funds in an IRA before I retire?
    • New parents can withdraw up to $5,000 per parent for birth or adoption of a child penalty free. The withdrawal will be subject to income taxes.
  • Will I see more choices in my 401k plan at work?
    • You may see annuities in your 401k now. After much lobbying of Congress, the insurance companies may have their annuity products more easily included in some workplace 401ks.
    • CAUTION IS ADVISED: For participants of plans that add annuities, it is imperative to speak with your financial advisor prior to buying into it. This means speaking to your financial advisor, not the plan advisor who is adding the annuity to the plan. Annuities are well-known for being expensive, lacking transparency, and lacking flexibility. There are better ways to achieve your income goals without locking your life savings into an annuity. The insurance industry lobbied very hard for this provision of the SECURE Act.
  • Are there changes to the 529 plan?
    • In some cases, families with money remaining in their college savings plans after their student graduates can use a 529 savings account to pay up to $10,000 in student debt over the course of the student’s lifetime.
    • It is very important to check with the 529 administrator since these plans are covered under state laws and regulations.
    • Homeschooling costs are not included in the SECURE Act, despite what many conflicting headlines say.