SECURE Act Implications

What the new Setting Every Community Up for Retirement Enhancement Act means for CRA members

The SECURE Act was signed into law on December 20, 2019. This law introduces several tax changes, some of which are specifically intended to help Americans save more for retirement.

Below are provisions that may apply to Colorado Retirement Association retirement plans.

Increased Required Minimum Distribution (RMD) age  

Beginning in 2020, retired individuals do not need to start RMDs until April 1 of the year following the year they turn 72 (up from 70½). Notably, this change does not apply to individuals who turned 70½ prior to 2020. Retired individuals who turn 70 ½ in 2020 will not be required to withdrawal RMDs until they are 72. As before, RMDs on employer-sponsored plans can be delayed until the later of age 72 or retirement. 

Examples:

  • A retired participant who turned 70½ last year must begin to withdraw RMDs. If eligible participants, beneficiaries and alternate payees did not take an RMD last year, their 2019 RMD will automatically be deferred and processed by CRA’s recordkeeper by April 1, 2020. These individuals will be required to take another RMD by December 31 this year. As a result, their first-year (2019) and second-year (2020) RMDs will be paid within the 2020 tax year.
  • A retired participant who turns 72 this year will need to start withdrawing RMDs beginning April 1, 2021.

Elimination of so-called “stretch” provision for non-spouse beneficiaries  

Non-spouse beneficiaries of tax-favored retirement accounts – such as CRA retirement plans and IRAs – can no longer “stretch” distributions over their life expectancy. Beneficiaries of account owners who pass away in 2020 or any year after must withdraw the full account balance by the end of the 10th year following the account owner’s death. Eligible designated beneficiaries are not subject to the new 10-year rule. Consult a tax advisor regarding eligibility.

Penalty-free withdrawals for childbirth or adoption expenses  

Penalty-free withdrawals from retirement plans are now permitted for childbirth or adoption expenses, up to $5,000. As always, withdrawals from retirement plans may be subject to IRS and applicable state tax withholdings.

Repeal of age limits on traditional IRA contributions   

While not specifically related to CRA retirement plans, the SECURE Act eliminates maximum age restrictions on making traditional IRA contributions. Under prior law, individuals over the age of 70½ could not make traditional IRA contributions.

If you have questions regarding any of these provisions as they relate to your CRA retirement plan, reach out to your CRA client services representative or email contactus@cra-online.org.

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Colorado Retirement Association will be closed from 3 p.m. MT on Friday, Feb. 14, through Monday, Feb. 17, in observance of President’s Day.

Given the financial markets also will be closed for President’s Day, CRA’s recordkeeper will be closed on Feb. 17 with the exception of the service center, which will be open from 7 a.m. to 5 p.m. MT and can be reached at 800.352.0313.

Transactions requested after market close on Friday, Feb. 14, will be initiated on Tuesday, Feb. 18. CRA’s offices will reopen for standard business hours on Feb. 18.

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