Retirement Savings Plans,Custom

IRS Continues to Issue Guidance on 2019's SECURE Act

September 16, 2020

On September 2, 2020, the Internal Revenue Service (IRS) issued Notice 2020-68 providing guidance on certain provisions of the Setting Every Community Up for Retirement Enhancement Act of 2019 (the "SECURE Act").

We've summarized those provisions of the Notice impacting governmental employers and employees below:

In-Service Distribution Age for Pension Plans and Governmental 457(b) Plans. For plan years beginning after December 31, 2019, pension plans (i.e., defined benefit plans and money purchase plans) and governmental 457(b) plans are allowed to make in-service distributions to participants at age 59½.

The Notice clarifies that plans are not required to make in-service distributions available at age 59½.

Qualified Birth or Adoption Distributions. Beginning in 2020, qualified birth or adoption distributions ("QBADs") from a retirement plan or IRA: (a) may be distributed regardless of whether an in-service distribution is otherwise permitted under the rules for 401(k), 403(b), and 457(b) plans; (b) are exempt from the 10% early distribution tax penalty; (c) are exempt from the direct rollover, mandatory 20% withholding, and 402(f) notice rules otherwise applicable; and (d) may be repaid to certain retirement plans and IRAs without regard to the usual 60-day time limit for rollovers. QBADs are limited to $5,000 per birth or adoption.

The Notice clarifies that an eligible retirement plan can choose whether to offer QBADs as an in-service distribution option and that a plan sponsor or plan administrator may rely on a reasonable representation from an individual that the individual is eligible for a QBAD, "unless the sponsor or administrator has actual knowledge to the contrary." The SECURE Act is generally interpreted to mean that QBADs may not be allowed in-service under a money purchase plan prior to age 59 ½, but the Notice does not address this question directly.

Post-Age 70½ IRA Contributions. For contributions made for taxable years beginning after December 31, 2019, individuals who have attained age 70½ by the last day of such year are no longer prohibited from making non-rollover contributions to traditional IRAs.

ICMA-RC is reviewing this guidance and incorporating it into our administrative practices and procedures. Please contact your plan representative if you have questions regarding the Notice.

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