Title I – Expanding and Preserving Retirement Savings
Sec. 101. Unrelated small employers may now join together in defined contribution Multi-Employer Plans (MEPs), starting in 2021.
Sec. 102. Raises the cap for automatic enrollment cap in employer-sponsored plans from 10% to 15% of pay after 1st plan year.
Sec. 104 Small business owners with up to 100 employees may receive a TAX CREDIT for starting a retirement plan, up to $5,000 ($250 per non-highly compensated employee).
Sec. 105 Plans with automatic enrollment may receive an additional tax credit of $500.
Sec. 106 Includes in the definition of “compensation” for IRA purposes certain taxable non-tuition fellowship and stipend payments to aid the individual in the pursuit of graduate or postdoctoral study.
Sec. 107 Age limit for making IRA contributions is repealed beginning with contributions for 2020. The age limit remains for contributions for 2019, but as long as you have working income you can still contribute for 2020 and future years. The new law also allows spousal IRAs even if the spouse is older than 70 ½.
Sec. 109 Allows “lifetime income investment” annuities to be portable, so if you leave your job they may be rolled into another 401(k) or IRA.
Sec. 112 Part-time workers working at least 500 hours per year in the last three years must be allowed to set aside funds into a company 401(k), although the company does not have to match until the normal eligibility requirements are met. Previously employees working less than 1,000 hours a year could be excluded from the plan.
Sec. 113 Up to $5,000 tax and penalty free withdrawal if within a year of birth or adoption. You can repay these distributions as a rollover contributions to an eligible defined contribution plan or IRA.
Sec. 114 Increases the age by which you must begin taking Required Minimum Distributions (RMDs) for those who turn age 70 ½ in 2020 or later. If you turn age 70 ½ in 2019 or earlier you still must take RMDs under the old law.
Title II – Administrative Improvements
Sec. 201 Employer plans adopted by the filing due date for the year may be treated as in effect as of the close of the year.
Sec. 203 Increases transparency into retirement income with “lifetime income disclosure statements” similar to those sent by the Social Security Administration. These statements are intended to show how much money you could potentially receive if your 401(k) balance were used to purchase an annuity.
Title III – Other Benefits
Sec. 302 A 529 savings plan may now be used to pay off student debt, up to $10,000 over the student’s lifetime. A 529 plan may also be used to pay for certain apprenticeship programs.
Title IV – Revenue Provisions
Sec. 401 Beginning in 2020, upon death of the account owner, IRA must generally be distributed to non-spouse beneficiaries by the end of the tenth year following the date of death. This rule applies to 401(k)s and other employer plans as well. No particular schedule of distributions is required, as long as all of the funds are distributed by the deadline. Exceptions exist for “eligible designated beneficiaries” including 1) the spouse of the deceased account owner, 2) disabled or chronically ill persons (as defined), and 3) persons not more than ten years younger than the account owner. Minor children of the deceased account owner have an exception to the 10-year rule, but only until they reach the age of majority, after which the account must be distributed within 10 years. Once the eligible designated beneficiary dies, the account must be distributed within the 10-year period.
Contribution Limits for 2020
Traditional IRA – Up to $6,000 or $7,000 if you reach age 50 by the end of the year (same as 2019)
Roth IRA – Up to $6,000 or $7,000 if you reach age 50 by the end of the year (same as 2019)
Roth IRA Income Limits for Contributions:
If Married Filing Jointly or Qualifying Widow(er)
Less than $196,000 – Up to the limit
From $196,000 but less than $206,000 – a reduced amount
From $206,000 and above – Zero
If Married Filing Separately (and you lived with your spouse at any time during year)
Less than $10,000 – a reduced amount
From $10,000 and above – Zero
If Single, Head of Household, or Married Filing Separately (and you did NOT live with your spouse during the year)
Less than $124,000 – Up to the limit
From $124,000 but less than $139,000 – a reduced amount
From $139,000 and above – Zero
Simplified Employee Pension (SEP) IRAs – Up to $57,000 ($56,000 in 2019)
SIMPLE IRA – Employee salary deferrals can be $13,500 ($13,000 for 2019) or $16,500 if you reach age 50 by the end of the year ($16,000 for 2019) plus the employer contributes a matching contribution up to 3% of salary
401(k)/Profit Sharing Plan – Roth or Traditional 401(k) salary deferrals up to $19,500 ($19,000 for 2019) and catch-up contribution of $6,500 ($6,000 for 2019) if you reach age 50 by the end of the year plus an employer profit sharing contribution of up to $37,500 (based on your income) for a total of up to $57,000 if you are under age 50 or $63,500 if you reach age 50 by the end of the year.
Health Savings Account (HSA):
Self-only coverage $3,550 ($3,500 for 2019)
Family coverage $7,100 ($7,000 for 2019)
Catch-up contribution for those age 55 or older by the end of the year $1,000 (no change)
Coverdell Education Savings Account (CESA) – Up to $2,000 per child per year until the child reaches age 18 or if the child is disabled