The Secure Act and Your Early 2020 Financial To-do List


What are your financial moves in year 2020? First, I think you need to start by checking out a legislation called the Setting Every Community Up for Retirement Enhancement (Secure) Act of 2019, which is effective on January 1, 2020. In this article, I will outline some of the key changes in the Act and how these changes may impact a person’s retirement, college and/or estate planning.

The following are some positive changes coming out of the Secure Act:

  • The Act allows families to pay for up to $10,000 in student loans tax free using the money in their 529 college savings plans.
  • The Act has pushed back the age that retirement plan participants need to take the required minimum distributions (RMD) from 701/2 to 72.
  • The Act encourages retirement plan sponsors to include annuity as an option in their plans by reducing plan sponsor’s liability if the insurer which sells annuity fails to meet its financial obligations.
  • The Act states that any employer who creates a 401(K) or SIMPLE IRA plan with automatic enrollment will get a maximum tax credit of $500 per year.
  • The Act also makes it easier for small businesses to set up 401(K) plans.

Now, on to some of the negative changes brought by the Secure Act:

  • The Act mandates that inherited IRAs for non-spouse beneficiaries must be distributed over 10 years.
  • The changes for the age that requires RMD from 701/2 to 72 creates confusions among individuals who attain age 701/2 in 2019 or 2020.

In order to minimize the confusion, the IRS issued Notice 2020-6 saying that the Secure Act did not change the required beginning date for IRA owners who attained age 701/2 prior to January 1, 2020. Given its significance, the first thing I suggest you to do is to learn more of this Secure Act and plan accordingly based on your individual situations.

Second, you need to know updated retirement and Health Savings Account contribution limits for 2020 and adjust your own contributions accordingly. According to the Internal Revenue Service the contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $19,000 to $19,500. The catch-up contribution limit for employees aged 50 and over who participate in these plans is increased from $6,000 to $6,500. The limitation regarding SIMPLE retirement accounts for 2020 is increased to $13,500.

Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. If during the year either the taxpayer or his or her spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income. (If neither the taxpayer nor his or her spouse is covered by a retirement plan at work, the phase-outs of the deduction do not apply.) Here are the phase-out ranges for 2020: 

  • For single taxpayers covered by a workplace retirement plan, the phase-out range is $65,000 to $75,000.
  • For married couples filing jointly, where the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is $104,000 to $124,000.
  • For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $196,000 and $206,000.
  • For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

The limit on annual contributions to an IRA remains unchanged at $6,000. The additional catch-up contribution limit for individuals aged 50 and over remains at $1,000. The income phase-out range for taxpayers making contributions to a Roth IRA is $124,000 to $139,000 for singles and heads of household. For married couples filing jointly, the income phase-out range is $196,000 to $206,000.

The income limit for the Saver’s Credit (also known as the Retirement Savings Contributions Credit) for low- and moderate-income workers is $65,000 for married couples filing jointly; $48,750 for heads of household; and $32,500 for singles and married individuals filing separately.

Annual HSA contributions for 2020 for individuals with family coverage are increased from $7000 to $7100. Account holders ages 55 or older can contribute an additional $1,000. However, in order to qualify for the contribution, a person must be enrolled in one of employer sponsored HSA-qualified high deductible high premium health insurance plans.

In 2020, the annual exclusion for gift tax is still the first $15,000 of gifts to any individual.

(Sources: IRS publications)