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A Few of the Other Provisions in the SECURE Act That Affect Financial Planning

In the previous Article on Wealth Management Topics, we discussed the SECURE Act's impact on distributions from tax-qualified accounts and contributions to IRA's.  The Setting Every Community Up for Retirement Enhancement Act also contained provisions affecting 529 plans, tax planning, and employee benefits.  Let's take a look at some of these other new rules:

Expansion of 529 Plans

Under the SECURE Act, up to $10,000 of a 529 plan account balance may now be used as a "Qualified Education Loan Repayment", a tax-free distribution to pay student loan principal or interest on behalf of the account's beneficiary and any siblings.  This provision should reduce any concern a parent may have about over-funding a 529 account.  In addition, expenses related to registered apprenticeship programs are now considered to be qualified with respect to withdrawing funds tax-free from 529 plan accounts.

Reversion of the "Kiddie Tax"

Interest, dividends and capital gains earned by a child and above the exempted amount are once again taxed at the parents' rate, instead of being taxed at the more punitive trust tax rates.  This part of the tax code is simply reverting to the way it was prior to 2017's Tax Cuts and Jobs Act.

Changes to Retirement Plans

Many of the SECURE Act's provisions are based on the realizations that many Americans are unprepared financially for retirement, and that many are working longer. To address this, the Act gives employers the leeway to raise the default rates at which workers will contribute to their retirement plan accounts.

SECURE also gives employers more cover to offer annuities as investment options within retirement plans as a way for participants to create lifetime streams of income for themselves.  This expands on a Treasury Dept. ruling from a few years ago, which allowed owners of IRA and 401k accounts to purchase "longevity annuities" with a portion of their balances.  However, some industry watchers are not so enamored with granting the insurance industry fox even more access to the retirement plan henhouse:

“Given the prevalence of high cost, low-quality annuities, we don’t start with the thought that this is a great idea.”

--- Barbara Roper, director of investor protection at the Consumer Federation of America

About the Author

Paul Winter, MBA, CFA, CFP® is a Fee-Only financial advisor and fiduciary in Salt Lake City, UT. His independent wealth management firm, Five Seasons Financial Planning, provides professional portfolio management and objective financial planning services to individuals and families, and to their related entities including trusts, estates, charitable organizations, and small businesses.

Contact Paul