Gress Income Tax Service

Tax Law Changes from the SECURE Act

SECURE Act Provisions — Further Consolidated Appropriations Act of 2020, Division O

Description

Code section/
Act section

California conformity

IRA and Individual Provisions

Allows individuals age 70½ or older to make deductible contributions to a traditional IRA, applicable to contributions made for taxable years beginning after December 31, 2019. Amounts contributed after age 70½ reduce the $100,000 IRA-to-charity limit, applicable to distributions made for taxable years beginning after December 31, 2019

IRC §219(d);
SECURE Act §107

No (awaiting confirmation from FTB). Contributions would not be deductible for California purposes

Increases the age for required minimum distributions from age 70½ to age 72. Applies only to taxpayers who turn age 70½ after December 31, 2019

IRC §401(a)(9)(C)(i)(I); SECURE Act §114

Yes

Allows for penalty-free withdrawals of up to $5,000 from retirement plans (other than defined benefit plans) for any qualified birth or adoption distributions, applicable to distributions made after December 31, 2019

IRC §72(t)(2);
SECURE Act §113

Yes (awaiting confirmation from FTB)

Treats certain nontuition fellowship and stipend payments paid to graduate and postdoctoral students as earned income for IRA contribution limit purposes, applicable to taxable years beginning after December 31, 2019

IRC §219(f);
SECURE Act §106

Yes

Allows In-Home Supportive Services (IHSS) workers to treat excludable difficulty-of-care payments as earned income for purposes of calculating the worker's IRA or defined contribution plans contribution limits, applicable for defined contribution plans to plan years beginning after December 31, 2015, and with respect to IRAs, to contributions after December 20, 2019

IRC §§408(o), 415(c)(3); SECURE Act §116

Yes

IRA and Individual Provisions (continued)

Revises the RMD rules for inherited IRAs to require a 10-year RMD unless beneficiary is the surviving spouse, is disabled or chronically ill, is an individual who is not more than 10 years younger than the employee (or IRA owners), or a minor child of the employee, generally effective for RMDs with respect to employees/IRA owners with a date of death after December 31, 2019 (delayed effective dates for governmental plans and collective bargaining agreements)

IRC §401(a)(9);
SECURE Act §401

Yes

Repeals the kiddie tax rate changes enacted by the TCJA, generally applicable to taxable years beginning after December 31, 2019, unless the taxpayer elects to apply it to the 2018 and/or 2019 tax year

IRC §§1(j), 55(d)(4)(A); SECURE Act §501

Yes, California never conformed to the TCJA kiddie tax changes

Employer Provisions

Increases maximum Small Employer Pension Plan Credit limit from $500 to $5,000, applicable to taxable years beginning after December 31, 2019

IRC §45E;
SECURE Act §104

N/A

Enacts new Small Employer Automatic Enrollment Credit equal to $500 per year for first three years, applicable to taxable years beginning after December 31, 2019

IRC §45T;
SECURE Act §105

N/A

Requires employers with 401(k) plans (other than collectively bargained plans) to permit an employee to make elective deferrals if the employee has worked at least 500 hours per year with the employer for at least three consecutive years and is age 21 by the end of the three-year period, generally effective for plan years beginning after December 31, 2020

IRC §401(k);
SECURE Act §112

Yes

Allows unrelated employers to participate in pooled multiple employer plans, applicable to plan years beginning after December 31, 2020

IRC §413;
SECURE Act §101

Yes

Penalty Provisions

Increases the penalty for failure to file a return within 60 days of the due date to the lesser of $435 (adjusted for inflation; previously $330) or 100% of the amount of tax due, applicable to returns with filing due dates (including extensions) after December 31, 2019

IRC §6651;
SECURE Act §402

No. California's penalty is the lesser of $135 or unpaid tax (R&TC §19131)

Increases the penalties for failure to file retirement plan returns as follows:

Form 5500: $250 for each day up to $150,000 maximum (previously $25 per day, up to $15,000 maximum)

Failure to file an annual registration statement or file notification of changes: $10 for each participant with respect to whom the failure applies per day, up to $50,000 maximum ($5,000 for notifications of change) per plan year (previously $1, with $10,000 maximum ($1,000 for notifications of change)

Failure to provide withholding notice: $100 for each failure, up to $50,000 maximum per calendar year (previously $10 per failure subject to a $5,000 maximum)

Applicable to returns, statements, and notifications required to be filed, and notices required to be provided, after December 31, 2019

IRC §6652;
SECURE Act §403

N/A

IRC §401(k) Provisions

Increases the limitation on the default rates under a §401(k) automatic enrollment safe harbor plan from 10% to 15%, applicable to plan years beginning after December 31, 2019

IRC §401(k)(13)(C)(iii); SECURE Act §102

Yes

Plan Administration Provisions

Allows IRC §403(b) custodial accounts terminated by an employer to be distributed to another custodial account, applicable retroactively to taxable years beginning after December 31, 2008. This provision allows employees to maintain their retirement funds in tax-deferred accounts longer

Uncodified;
SECURE Act §110

Yes

Allows plans adopted by filing due date (including extensions) for year to be treated as in effect as of close of year, applicable to plans adopted for taxable years beginning after December 31, 2019

IRC §401(b);
SECURE Act §201

Yes