January 6, 2020

House Retirement Savings Bill – SECURE


By an overwhelmingly bipartisan vote of 417-to-3 on May 23rd of this year, the U.S. House of Representatives passed the Setting Every Community Up for Retirement Enhancement (SECURE) bill of 2019. SECURE then moved to the Senate for a vote and to reconcile SECURE with the Senate’s similar bill entitled the “Retirement Enhancement and Savings Act (“RESA”). SECURE sat in the Senate for many months until the House initiated a fiscal year 2020 appropriations measure and included the following tax provisions.  The Senate passed SECURE, sent it to the White House, and President Trump signed it into law on December 20, 2019.

  1. Retroactive and current renewal of several temporary tax breaks known as “tax extenders”, which have expired or soon will expire spanning from 2017 to 2019. These tax breaks generally will be extended through 2020.
  2. Certain needed “fixes” to the Tax Cuts and Jobs Act (“TCJA”).
  3. SECURE Act which makes sweeping changes to retirement savings which will be the focus of our discussion here.

Some of the main provisions of SECURE are as follows:

  1. Replaces the “5-year” rule for required minimum distributions (“RMD”) from both qualified plans and IRA’s made to non-spouse beneficiaries with a 10-year window. This new 10-year period will apply regardless of whether the plan participant or IRA owner dies before or after reaching the required beginning date (“RBD”) for taking a RMD. This change effective for distributions made with respect to plan participants and IRA owners dying after 2019 severely limits the practice of “stretching out” distributions previously done in many cases over the lives of the non-spouse beneficiaries.
  2. The RMD beginning date for both employer plans and IRA’s will now be when the owner reaches age 72 rather than 70 ½.
  3. The maximum age limitation of 70 ½ for making deductible IRA contributions is now eliminated.
  4. Several changes made to make it easier for Small Employers to offer retirement plans to their employees and SECURE offers an new class of Multiple Employer Plan (“MEP”). This MEP service provider option allows the creation of pooled MEP’s called pooled employer plans. These are individual account plans providing benefits to employees of 2 or more employers.

Another part of SECURE addressed the effect of the TCJA’s rules designed to make it easier to calculate the “kiddie” tax on the unearned income of a child. Under TCJA, a child would be taxed using the tax rate schedule for trusts and estates which are designed to hit the top income tax rate of currently 37% at a significantly lower taxable income ($12,750 in 2019 as opposed to $612,350 for a married filing jointly couple in 2019). This change under TCJA has the unintended effect of creating higher income tax consequences for low- and middle-income families who received certain benefits that are considered unearned income. SECURE now repeals the TCJA change on the manner of taxing unearned income of a child. The repeal of that provision now enables the “kiddie” tax to be calculated by computing the child’s share of the “allocable parental tax.” This change applies to tax years beginning after 2019 but allows the taxpayer to apply the change to tax years 2018 and 2019.

We will address later other tax provisions that Congress included in its year-end appropriations bill. For now, we wish all of you a healthy and prosperous 2020.


Joe Thomson


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