Prior to enactment of SECURE, you could not contribute to a traditional IRA in the year you turned 70½ and thereafter. (There is no such limitation for contributions to Roth IRAs.) SECURE removes that limitation, effective for taxable years beginning after December 31, 2019. So, beginning in 2020, you can contribute to a traditional IRA regardless of your age. However, other limitations continue to apply to IRA contributions, such as:
Generally you cannot contribute to an IRA unless you have compensation. Under prior law, stipends and non-tuition fellowship payments received by graduate and postdoctoral students were not treated as compensation, even if taxed. Therefore, students who only had that type of income could not make IRA contributions.
SECURE changes that. Now, stipends and non-tuition fellowship payments will be considered compensation for IRA contribution purposes. The change will enable these students to begin saving for retirement and accumulate tax-favored retirement savings. This change is effective for taxable years beginning after December 31, 2019.
401(k) retirement plans offer a variety of investment options. Although 401(k) plans can offer annuities, only about 10% do. This is in part because of the credit risk associated with a commercial annuity (the payor insurance company could fail). In such a case, the 401(k) sponsor company might be sued by 401(k) participants. SECURE would protect 401(k) sponsor companies from such liability, if certain conditions are met. SECURE would also make such annuities “portable,” meaning that if a participant leaves the company, the annuity could be rolled into another 401(k) or an IRA without triggering surrender charges.
Employers may generally exclude part-time employees (those who work less than 1,000 hours) from participating in defined contribution plans. The Ways and Means Committee summary of the SECURE Act explains that the current rules can be harmful to women who are more likely to work part-time. SECURE requires employers to allow employees with 500 hours of service in three consecutive years to participate in 401(k) plans. However, the employer may elect to exclude these employees from testing under the nondiscrimination and coverage rules, and from the application of the top-heavy rules.
This change would be effective for plan years beginning after December 31, 2020.