The SECURE Act’s changes

By Tom Adams, CPA, CGMA, Ph.D., and C. Andrew Lafond, CPA, DBA

The SECURE Act’s changes
Photo by malerapaso/iStock

New tax laws enacted late in 2019 carry wide-ranging implications for employers, workers, retirement plan administrators, retirees, and students. In fact, this sweeping legislation, the Setting Every Community Up for Retirement Enhancement (SECURE) Act (Division O of the Further Consolidated Appropriations Act, 2020, P.L. 116-94), represents the most significant set of changes since the Pension Protection Act of 2006, P.L. 109-280. Most provisions took effect at the beginning of this year, but some have yet to do so.

The SECURE Act is intended to encourage individuals to save for retirement while relaxing employer administrative obligations. The most significant provisions affecting individual retirement arrangements (IRAs) and other qualified retirement plans, plan administration, multiple-employer plans, and students are discussed below, along with tax considerations and strategies that CPAs may wish to discuss with their business and individual clients.


Required minimum distributions (RMDs)

The SECURE Act raised retirees' beginning age of RMDs from IRAs and other qualified plans from 70½ to 72, effective for distributions required to be made with respect to retirees reaching age 70½ after Dec. 31, 2019. (Also, the Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136, waives RMDs for calendar year 2020.)

IRA age restriction on contributions

For tax years beginning after Dec. 31, 2019, the SECURE Act eliminated the age restriction for IRA contributions. Previously, individuals could not make deductible contributions to their retirement plans in or after any tax year in which they reached age 70½.

Elimination of 'stretch' IRAs

To help pay for the above changes, Congress ended "stretch" IRAs. The most criticized feature of the act, this provision results in some beneficiaries' paying more in taxes over shorter distribution periods. Generally, for qualified plan participants or IRA owners dying before the required beginning date of RMDs, distributions must begin within one year of the participant's or owner's death. Before the SECURE Act, they could be paid out over the life or life expectancy of a nonspouse designated beneficiary of the participant or owner. Thus, if the beneficiary was a child or grandchild, distributions could be stretched out over a relatively long period. Effective for participants or owners dying on or after Jan. 1, 2020, the SECURE Act requires (with some exceptions) distributions to be taken within 10 years of the participant's or owner's death, and this requirement is forecast to generate $15.75 billion in revenue from 2020 to 2029 (Joint Committee on Taxation, Estimated Budget Effects of the Further Consolidated Appropriations Act, 2020 (JCX-54-19 R) (Dec. 17, 2019)). Beneficiaries exempt from this 10-year provision are surviving spouses, minor children of the participant or owner, individuals no more than 10 years younger than the decedent, and disabled or "chronically ill" individuals.


Eligibility for part-time employees

Effective for retirement plan years beginning after Dec. 31, 2020, the SECURE Act requires plans to allow 401(k) plan participation by long-term, part-time employees. An employee qualifies if he or she either (1) completed 1,000 hours of service in the previous 12 months, or (2) completed at least 500 hours of service in each of the previous three years. For employees qualifying under (2), employers are not required to make nonelective or matching contributions.

Penalty-free withdrawals for birth/adoption-related expenses

Effective for distributions made after Dec. 31, 2019, penalty-free withdrawals from qualified plans may be made for birth or adoption expenses, up to $5,000 per child. The distribution must be taken within the one-year period beginning on the date of birth or the date on which a legal adoption is finalized. The withdrawal can be repaid to the plan.

Auto-enrollment safe-harbor cap

Effective for 401(k) plan years beginning after Dec. 31, 2019, the maximum default rate for nondiscrimination testing under an automatic-enrollment safe-harbor plan is increased to 15% (from 10%) after the first year of an employee's deemed election.

Annuity options

The act provides a safe harbor by which fiduciaries may meet Employee Retirement Income Security Act (ERISA) prudent-man requirements for selecting annuities, thereby facilitating annuities' inclusion in 401(k) and other defined contribution plans.

Plan loans may not be made by credit card

Qualified retirement plan loans have sometimes been made through a credit or debit card. The act prohibits loans through these cards or similar arrangements.


Small employer auto-enrollment and startup cost credits

Effective for tax years beginning after Dec. 31, 2019, the act provides a general business credit under new Sec. 45T of $500 to employers that establish a qualified employer plan. The plan must have an automatic enrollment feature, and the credit is available for up to three years. In addition, the act increased the maximum Sec. 45E credit for qualified startup costs of pension plans offered by small employers to $5,000.

Plan adoption

Employers may treat a qualified retirement plan they adopt after the end of a tax year but no later than the due date (including extensions) of their federal income tax return for the tax year as having been adopted as of the last day of the tax year, effective for plans adopted for tax years beginning after Dec. 31, 2019.

Consolidated Form 5500

Effective for plan years beginning after Dec. 31, 2021, a group of plans may file a consolidated Form 5500, Annual Return/Report of Employee Benefit Plan, if the plans (1) are defined contribution or individual account plans; (2) have the same trustee, the same named fiduciary, the same administrator and plan administrator, and the same plan year; and (3) provide the same investments or investment options to all participants and beneficiaries.

Nondiscrimination rules for closed defined benefit plans

The act makes permanent prior relief from the nondiscrimination and minimum-participation rules for frozen (closed) defined benefit plans. These rule modifications improve and protect the benefits of older employees as they near retirement.


The act eases restrictions on multiple-employer retirement plans, which involve two or more companies joining to reduce plan administrative expenses. The act eliminates the "one bad apple rule," ensuring that one employer's disqualification does not disqualify the entire multiple-employer plan, subject to certain conditions.

These will be treated as a single plan under ERISA, which means they will have a single plan document, one Form 5500 filing, and a single independent plan audit, creating savings for small employers.


529 plan distributions

The act allows distributions from a 529 plan to be used to pay principal and interest on student loans of the designated beneficiary or the beneficiary's sibling, up to a lifetime limit of $10,000. In addition, 529 plans may now be used to pay for fees, books, supplies, and equipment required for participation in certain apprenticeship programs.

Graduate student stipends

Previously, taxable stipends and nontuition fellowships received by graduate and postdoctoral students were not treated as compensation for the purpose of making deductible IRA contributions. Effective for tax years beginning after Dec. 31, 2019, these amounts are treated as compensation for this purpose, enabling graduate students to begin saving for retirement.


Financial planners and tax practitioners should meet with their clients to minimize any negative impact while maximizing any retirement planning and tax benefits the SECURE Act has made available.

Tom Adams, CPA, CGMA, Ph.D., and C. Andrew Lafond, CPA, DBA, are an assistant and an associate professor, respectively, at La Salle University in Philadelphia. To comment on this article or to suggest an idea for another article, contact Paul Bonner, a JofA senior editor, at

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