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New Rules Regarding Retirement Benefits — More Secure?


The Setting Every Community Up for Retirement Enhancement Act (SECURE Act) is now effective.  The Act made various changes to rules regarding qualified retirement plans as well as some changes to 529 plans.  The following are but a few of the changes:

IRAs and other Qualified Retirement Plans

Under the SECURE Act, the general rule is that after an employee or IRA owner dies, the remaining account balance must be distributed to designated beneficiaries within 10 years thereafter. This rule applies regardless of whether the employee or IRA owner dies before, on, or after the required beginning date, unless the designated beneficiary is an eligible designated beneficiary.

An eligible designated beneficiary is: (1) the surviving spouse of the employee or IRA owner; (2) a child of the employee or IRA owner who has not reached majority; (3) a chronically ill individual; or (4) any other individual who is not more than ten years younger than the employee or IRA owner.  Under the exception, following the death of the employee or IRA owner, the remaining account balance generally may be distributed (similar to present law) over the life or life expectancy of the eligible designated beneficiary, beginning in the year following the year of death.

Previously, an employee or IRA owner had to withdraw required minimum distributions (RMD) in the year they turned age 70 1/2. The SECURE Act increases that age to 72.

Employer-sponsored retirement plans are now available to long-term part-time workers, with a lower minimum number of hours worked. The SECURE Act drops the threshold for eligibility down to either one full year with 1,000 hours worked, or three consecutive years of at least 500 hours.

529 Plans

Under Internal Revenue Code section 529, a person may contribute to an account for a designated beneficiary’s qualified higher education expenses. Distributions (including any attributable earnings) from a 529 plan are not included in gross income if such distributions do not exceed the designated beneficiary’s qualified higher education expenses.  For distributions made after Dec. 31, 2018, section 529 education savings accounts may cover costs associated with registered apprenticeships, and up to $10,000 of qualified student loan repayments (principal or interest). A special rule for qualified student loan repayments allows such amounts to be distributed to a sibling of a designated beneficiary (i.e., a brother, sister, stepbrother, or stepsister).  The deduction for interest paid by the taxpayer during the tax year on a qualified education loan is disallowed to the extent the interest was paid from a tax-free distribution from a 529 plan.

If you would like to discuss any of these changes or if you have other questions regarding retirement planning or 529 plans, please contact Morris Saunders or any of our partners at Levin Ginsburg, 312-368-0100.

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