On September 4, 2020, the IRS issued Notice 2020-68 to provide guidance on a number of provisions in the Setting Every Community Up for Retirement Enhancement Act (SECURE Act) affecting retirement plans, as well as Section 104 of the Bipartisan American Miners Act of 2019. Notice 2020-68 also provides guidance on plan amendment deadlines.
The Notice provides Q&A guidance on the following SECURE Act provisions:
Small Employer Automatic Enrollment Credit
The Notice clarifies the rules in Section 105 by which employers with less than 100 employees can receive a $500 credit for adopting an eligible automatic contribution arrangement (EACA) to a new or existing plan during a credit period, which is defined as three tax years following the first tax year that an EACA is included in a qualified employer plan. The credit is applicable to tax years beginning after December 31, 2019.
Repeal of Maximum Age for Traditional IRA Contributions
Section 107 of the SECURE Act repeals the maximum age cap of 70 ½ for contributions to a traditional IRA. Section 114 of the SECURE Act increases the age for required minimum distributions (RMDs) from IRAs to 72 (from 70 ½).
The Notice clarifies that an individual is not allowed to offset his or her RMD amount by the amount of contributions made after age 70 ½ in the same tax year since distributions and contributions are separate transactions.
In addition, the Notice provides financial institutions with discretion as to whether to accept contributions by those over age 70 ½. If post-age 70 ½ contributions are allowed by a financial institution, then its contracts must be amended by December 31, 2022, with notice provided to affected individuals 30 days after an amendment is adopted or in effect, whichever is later.
The SECURE Act also provided for a gross income exclusion of up to $100,000 for charitable contributions from an IRA. The Notice clarifies that the excludable amount is not reduced by any post-age 70 ½ contributions that caused a reduction in the excludable amount of qualified charitable distributions for earlier tax years.
Difficulty of Care Payments
Section 116 permits excluded difficulty of care payments for qualified foster care to be treated as compensation for determining limits on retirement plan contributions. Accordingly, an individual may make contributions or receive distributions from a plan based on these difficulty of care payments, even if the participant has no other compensation. The Notice further clarifies that:
- Only difficulty-of-care payments from an individual’s employer may be treated as compensation. Difficulty-of-care payments received by an individual from a source other than an employer are not eligible for inclusion as compensation under that employer’s plan.
- Employers that do not make difficulty of care payments do not have to mention them in their plan. If the employer does make difficulty of care payments, the plan must be amended to include these payments.
401(k) Plan Expansion to Long-Term, Part-Time Workers
See our previous post on IRS Provides ‘SECURity’ Through 401(k) Plan Expansion to Long-Term, Part-Time Workers.
Early Withdrawal Tax Exception for Qualified Births and Adoptions
See our previous post on Family ‘SECURity’: Early Withdrawal Tax Exception for Qualified Births and Adoptions.
Plan Amendments
The Notice reiterates that the deadline for discretionary and required plan amendments under the SECURE Act is the end of the first plan year beginning on or after January 1, 2022. For governmental and collectively bargained plans, the deadline is January 1, 2024.
The HBL team helps clients manage legislative and regulatory changes to employee benefit plans. To get help making or administering changes to your plans today, call 678-439-6236.
Hall Benefits Law, LLC
