SECURE Act Highlights
On December 20, 2019, President Trump signed into law the Further Consolidated Appropriations Act, 2020 (H.R. 1865), which included the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 (the “Act”). Here is a summary of select changes that may affect DCP participants. Additional updates on other provisions of the law will be forthcoming:
Changes to the Required Minimum Distribution (RMD) Rules
The age when DCP participants must take RMDs, which was previously age 70½, was increased to age 72 for those individuals that turn 70½ in 2020. That means if you were born after July 1, 1949 and have retired from the City of Los Angeles, you do not need to begin RMD until age 72. If you were born before July 1, 1949 and you have already retired, this change will not impact you. You will still be required to take RMDs by April 1, 2020. By extending the RMD start date to age 72, the SECURE Act extends the time those funds may grow without being depleted by distributions and taxes.
New RMD rules for payments to non-spousal beneficiaries from certain defined contribution plans
Payments to most non-spousal beneficiaries must be completed by the 10th calendar year following the year of the participant’s death regardless of whether RMDs begin before or after death. This change was made to eliminate "Stretch" RMDs over the lifetime of certain non-spousal beneficiaries ("Stretch" RMD is a tax strategy used to “stretch” the tax-deferred status of funds in plans by providing for RMD payout over the lifetime of a younger designated beneficiary following the death of the participant). Since it is expected that this provision will be further clarified by Internal Revenue Service guidance, you may want to consider reviewing the beneficiary designations of your retirement accounts once that guidance is released and making any appropriate modifications to your beneficiary designations under the DCP. If your beneficiary is a trust, consult with a tax and legal professional to review how this change may affect your estate plan. A non-Individual beneficiary (an estate, a Trust that does not meet the look through requirements, or a charity) remains under the five year rule. Since you are a participant in a governmental plan, this change applies to distributions to beneficiaries when the plan participant passes away after December 31, 2021.
The SECURE Act includes other optional provisions which are presently being evaluated by the City’s Board of Deferred Compensation Administration.
Have questions on how the SECURE Act may affect your retirement? You can schedule a meeting at LA457.com, call our Service Center at 844-523-2457, or visit a Local Retirement Counselor* in Room 867 of City Hall.
Sources: http://voyainsights.voya.com/whats-new/highlights-secure-act-what-you-need-know-now
* Information from Voya registered plan service representatives is for educational purposes only and is not legal, tax or investment advice. Local plan service representatives are registered representatives of Voya Financial Advisors, Inc. (member SIPC).
This information is provided by Voya for your education only. Neither Voya nor its representatives offer tax or legal advice. Please consult your tax or legal advisor before making a tax-related investment/ insurance decision.