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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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Selling Your Business?

John Smith owned a small manufacturing business.  One day he received a call from one of his competitors who said he was interested in buying John’s business.  John was now 75 and this seemed like the perfect opportunity for him to retire and have that “nest egg” for him live comfortably in retirement.

John met with the buyer and they discussed, in general, John’s business.  After the meeting, the buyer presented a letter of intent to John, which proposed a purchase price of $10,000,000, subject to the buyer’s due diligence investigation of John’s business.  John felt pleased with the letter of intent and signed and returned it to the buyer.

During a long and protracted (and quite thorough) due diligence, the buyer and his accountants and lawyers examined the business and its books and records.  Based upon their examination, they advised the buyer of various legal and financial risks that John’s business was exposed to and which could become issues that the buyer would have to face.

John could not produce all of his current contracts with his customers.  The contracts which he had contained provisions which could cause the contracts to be terminated upon a sale of the business or a transfer of the ownership of the business.  Their key employees had no employment agreements and could compete with the business once they terminated employment.  The leases for the business’s facilities could not be assigned.

Despite the issues with the business, the buyer was still interested in purchasing the business.  The bad news was that the revised purchase price was to be $8,500,000 with a significant portion to be held in escrow pending resolution of various legal issues.

The above scenario is very common with small business owners.  Bigger companies who regularly acquire smaller companies are “professionals” in the acquisition business.  They know exactly what to look for and they know how to “string the seller along” until they present a reduced offer which most sellers feel they have to accept.

If you are thinking of selling your business, make sure that your business is ready to be sold and that you have copies of all contracts and leases and that you understand what they provide and how they will be affected upon a sale.  Have written employment agreements with all your “key employees.”  Pay attention to your inventory, your accounts receivable and other assets which “drive the sales price.”  Protect your intellectual property by obtaining patents, to the extent applicable, and trademarks.

If you are considering selling your business and would like a “legal check-up,” please do not hesitate to contact:

Morris Saunders at:
msaunders@lgattorneys.com or 312-368-0100.

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