Setting Every Community Up for Retirement Enhancement Act of 2019
Jun 3, 2019
Introduced: Mar 29, 2019
Last updated: Jun 3, 2019
Jun 3, 2019
Introduced: Mar 29, 2019
Last updated: Jun 3, 2019
Summary
Makes several changes to retirement savings plans to help more people save for their future, especially those working for small businesses.
What problem does this solve?
Many people, particularly those working for small companies, do not have access to good retirement plans and find it hard to save enough money for when they get older. This act makes it easier and cheaper for small businesses to offer retirement plans and gives people more flexible ways to save.
What does this bill do?
Creates pooled employer plans (PEPs)
Allows multiple small, unrelated businesses to join a single 401(k) plan. This lowers the cost and administrative work for each business, making it easier for them to offer retirement benefits to their workers.
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Sec. 114
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Increase in age for required beginning date for mandatory distributions
Increases the age for required minimum distributions (RMDs)
Raises the age when people must start taking money out of their retirement accounts from 70.5 to 72. This allows savings to grow for a longer time.
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Sec. 107
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Repeal of maximum age for traditional IRA contributions
Removes the age limit for traditional IRA contributions
Eliminates the rule that stopped people from putting money into a traditional IRA after age 70.5. Now, anyone with earned income can contribute at any age.
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Sec. 401
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Modification of required distribution rules for designated beneficiaries
Changes rules for inherited retirement accounts
Requires most non-spouse beneficiaries to withdraw all funds from an inherited retirement account within 10 years of the original owner's death. This ends the 'stretch IRA' strategy for many.
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Sec. 112
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Qualified cash or deferred arrangements must allow long-term employees working more than 500 but less than 1,000 hours per year to participate
Allows part-time workers to join 401(k) plans
Requires employers to let long-term, part-time employees who work at least 500 hours a year for three straight years participate in their 401(k) plans.
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Sec. 113
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Penalty-free withdrawals from retirement plans for individuals in case of birth of child or adoption
Permits penalty-free withdrawals for birth or adoption
Allows parents to take out up to $5,000 from their retirement account without paying the usual 10% early withdrawal penalty to cover costs for a new child by birth or adoption.
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Sec. 104, 105
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Increase in credit limitation for small employer pension plan startup costs
Increases tax credits for small businesses
Boosts the tax credit for small businesses that start a new retirement plan. It also adds a new $500 credit for employers who add an automatic enrollment feature to their plans.
Expands the use of 529 education savings plans
Allows money from 529 plans to be used for costs of registered apprenticeship programs. It also allows up to $10,000 to be used to pay off student loans.
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Sec. 204
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Fiduciary safe harbor for selection of lifetime income provider
Provides a safe harbor for offering annuities in 401(k)s
Gives employers legal protection when choosing an insurance company to provide annuity options in their retirement plans. This encourages employers to offer lifetime income products.
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Sec. 403
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Increased penalties for failure to file retirement plan returns
Increases penalties for failing to file retirement plan returns
Significantly raises the fines for employers who fail to file required retirement plan documents on time, such as the Form 5500.
Who does this affect?
- Small business owners and their employees
- Older workers and retirees
- Individuals inheriting retirement accounts
What is the real world impact?
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Encourages more small businesses to offer retirement plans
Makes it easier and cheaper for small businesses to join together to offer 401(k) plans, known as Pooled Employer Plans (PEPs). This reduces the costs and paperwork that often stop small companies from offering retirement benefits.
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Provides more flexibility for savers
Allows people to keep contributing to their IRAs after age 70.5 and pushes back the age when they must start taking money out to 72. It also allows penalty-free withdrawals for the birth or adoption of a child.
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Pays for the new benefits by changing inheritance rules
Changes the rules for people who inherit retirement accounts. Most non-spouse beneficiaries must now withdraw all the money within 10 years, which can lead to a larger tax bill sooner. This change helps pay for the other tax breaks in the act.
When does this start?
The law's different parts become effective on various dates, with most changes applying to plan years, contributions, or distributions made after December 31, 2019.
Required Minimum Distribution (RMD) Age Change
Applies to distributions required after December 31, 2019, for individuals who turn 70.5 after that date.
Repeal of Maximum Age for IRA Contributions
Applies to contributions made for tax years beginning after December 31, 2019.
New Rules for Inherited Retirement Accounts
Applies to distributions for employees who die after December 31, 2019, with some exceptions for collective bargaining and government plans.
Penalty-Free Withdrawals for Birth or Adoption
Applies to distributions made after December 31, 2019.
Pooled Employer Plan (PEP) Rules
Applies to plan years beginning after December 31, 2020.
401(k) Eligibility for Long-Term, Part-Time Workers
Applies to plan years beginning after December 31, 2020, but service before January 1, 2021 is not counted.