Just before adjourning for the Christmas/New Year holiday, Congress included, and the President signed, the Setting Every Community Up for Retirement Enhancement (SECURE) Act in the federal government spending bill. This action provides the most significant changes in retirement law in more than a decade. Some of the changes relate to how income will be determined for eligibility in various affordable housing programs, including the LIHTC and Section 8. Here are some of the changes that affordable housing managers should be familiar with:
- An increase in the required minimum distribution (RMD) age. Most affordable housing managers know that with the exception of Roth IRAs, individuals must begin taking a minimum annual distribution from retirement accounts once they turn 70.5. This new law increases the RMD age to 72 for persons who turn 70.5 after December 31, 2019. So, for applicants/residents who were 70.5 on or before December 31, 2019, we should still be looking for RMDs. However, if you have an applicant or resident who will turn 70.5 after December 31, 2019, the RMD will not be required until they reach age 72.
- Eliminated the age cap for traditional IRA contributions. Under the prior law, people age 70.5 with wage income were prohibited from putting money into a traditional IRA. This cap has been removed, meaning that regardless of age or whether they are working, individuals may continue to contribute to their IRA. So, even for older residents, the balance in these accounts may increase from year-to-year.
- Makes it easier to include annuities inside retirement plans. Companies have been reluctant to offer annuities in 401k plans due to legal liabilities. The SECURE Act reduces the legal issue so we may see more retirement accounts that include annuities. While this will not require any immediate change in how affordable housing managers deal with annuities, it may cause HUD to re-examine how annuities are handled for housing purposes. However, changes are incremental at HUD, so any short-term change is unlikely.
- Eligibility for part-time workers has been expanded. The former rules required that people work at least 1,000 hours in a calendar year to participate in most company plans. Beginning in 2021, the new law will allow those who worked at least 500 hours per year for at least three consecutive years to enroll in retirement plans. This means that affordable housing managers – beginning in 2021 – should not assume that part-time workers do not have company retirement plans such as 401ks.
From the standpoint of affordable housing managers, the biggest change is the age change for RMDs. This should be kept in mind when determining the potential income of older applicants and residents.