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SECURE ACT and Solo 401k: New Law Affects You

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As a Solo 401k account holder, you must keep a finger on the pulse of regulations that affect you. The Setting Every Community Up for Retirement Enhancement Act (SECURE ACT) became law in December 2019. And as a Solo 401k account holder and small business owner, this new law directly affects you.

Everyone has a vested interest in this congressional act. That’s because the purpose is to strengthen the nation’s retirement system. Nothing in the SECURE ACT is as redefining as the Tax Cuts and Jobs Act of 2017. However, this legislation intends to make small adjustments to the rules governing retirement accounts. The hope is that access to retirement plans improves. This is only one step of several needed to address the retirement crisis.

Because of possible SECURE ACT implications to readers, we started sharing information about possible impacts to retirement accounts in April of 2019. Now, we provide updates based on what has actually become law. And we will continue providing updates as the SECURE Act rolls out.

SECURE Act and Solo 401k Set Up Deadline

Starting in 2020, you can establish a Solo 401k through tax day (plus extensions). In 2019 and prior years, your Solo 401k had to be established by the end of the tax year (usually December 31). The new date to establish a Solo 401k extends to the business tax filing deadline plus any extensions.

This is great news for business owners because it means you have more time to establish a new Solo 401k plan for your small business.

SECURE Act and Solo 401k RMD Extension

Another SECURE Act update affecting the Solo 401k is the delayed age of Required Minimum Distributions (RMDs). The RMD age has changed from age 70½ to age 72. This applies to people turning age 72 in 2020 and later. A later RMD date is great news for people working beyond age 70½. As our collective life spans increase, it makes sense to delay the start of an RMD since many people are working later into their lives.

As of today, people turning age 70½ in 2019 or before must take required distributions for 2019. However, IRS guidance is expected for those who are 70½ but will not be 72 in 2020.

Additionally, you now can continue contributing to an IRA beyond the age of 70½.  This is also great news for those working later who want to keep contributing to a retirement plan. For those in a lower tax bracket (such as semi-retired), we expect more interest in opening an after tax Roth IRA.

ROBS, Students Affected by SECURE Act As Well

Grad students gain the ability to start retirement accounts earlier with a new source of funds. Previously, contributions came only from what the IRS defines as “taxable compensation.” This includes wages, salaries, bonuses, tips, and self-employment net income. The new category of funds includes certain non tuition fellowships and stipends. This is how graduate students are often paid, thus creating a new opportunity to start a retirement account sooner.

The SECURE Act also makes some adjustments to the administration of Rollovers As Business Startups (ROBS) 401 plans. This won’t affect Solo 401k accounts because few people use the ROBS structure due to the risks and complexity. However, the new law wavies some IRS notice requirements. Additionally, you have more time to amend a plan, if needed. These will only be effective for plans in 2020 and later.

No More Stretch IRAs

An unwelcome change is the removal of “stretch” provisions for beneficiaries of IRAs and 401ks. Previously, beneficiaries could stretch the distributions over their lifetime to minimize taxes. Now, the stretch provision is limited only to beneficiaries who are surviving spouses, minor children, and those not more than 10 years younger than the deceased. Any other beneficiaries (including grandchildren) must take all distributions within 10 years of the death of the owner. Taxes are paid over 10 years instead of over a lifetime.

If you have a Solo 401k or IRA LLC, you may want to review your beneficiary decisions. There are work-arounds to the loss of the stretch provision. We expect this to become more popular with Solo 401k account owners looking to minimize inheritance taxes. Also, this has no taxable implication on Roth IRAs and Roth Solo 401ks because the taxes have already been paid.

SECURE Act and Solo 401k: Part-Time Employees

If your business has full-time W2 employees (working 1000 hours each or more per year), you do not qualify for a Solo 401k. However, part-time employees have been excluded in the past. The SECURE Act changes that for Solo 401k account holders. If you have employees working 500 hours per year, for 3 consecutive years, they must be included in your 401k plan as well.

This does not apply to employees with a bargaining union and it only applies after the employee reaches age 21. Also, the 3 consecutive year period does not begin until 2021. The reason for this change is congress’s desire to increase retirement coverage to more people. Additional guidance from the IRS is expected.

Other Inclusions in the SECURE Act

You can now withdraw up to $5,000 for a new birth or adoption. The early withdrawal penalty will not apply. But it will become part of your annual taxable income. You can also repay the funds to the account at a later date.

A provision that shouldn’t affect Solo 401k owners is the Multiple Employer Plans or MEPs. This allows multiple employers that have no working relationship with each other to work together to provide retirement accounts for employees. The intention is to make these retirement plans more affordable to employers by sharing administrative costs. This becomes effective in 2021.

The Secure Act provides additional options for lifetime income strategies by allowing you to convert their retirement savings into guaranteed lifetime income through annuities. But there are reasons to be cautious with this because annuities can be complex. Since this is so new, we expect more time before these become widely available.


While the SECURE Act is still being rolled out, it’s important to know that a remedial amendment period has been included. This gives existing plans that need to make document changes until the end of 2022 to make any necessary changes. However, plans will need to begin operating within the new requirements before document changes are completed.

Overall, the SECURE Act is a medley of changes lawmakers have been considering for the past decade. It will take time and further guidance to fully understand the final implications to retirement plans.

Have questions about growing your retirement account? The 401k experts at Nabers Group will help you get your retirement funds into your control, where they belong.

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