By Daphne Stern, Esq

In my last article (“New Law Impacts Retirement Plans“), I discussed the Setting Every Community Up for Retirement Enhancement (SECURE) Act and its significant impact on retirement assets such as Individual Retirement Accounts (IRAs) and Internal Revenue Code Section 401(k) retirement plans. I stressed the importance of reviewing your retirement assets to determine how you are affected by the SECURE Act and what changes need to be made to ensure that your retirement and estate planning goals are accomplished.

Perhaps the greatest change affected by the new act is the elimination of the ability of a named beneficiary of a retirement account to receive the distributions over their lifetime. Under the SECURE Act, the account must be distributed to the beneficiary within 10 years after the death of the account owner. This may result in negative tax consequences since income taxes will be imposed as to these distributions upon receipt by the beneficiary. This will also limit the ability of an account owner to provide a steady stream of income for a family member throughout his or her life.

In this article, I will focus on some of the other provisions of the SECURE Act that will be relevant to people at various stages of life.

Section 529 College Savings Plans

An Internal Revenue Code Section 529 plan account may be established by parents to save money in a tax-effective manner for the future educational expenses of a child. While there is no deduction for the amounts contributed to the account for federal income tax purposes, New York State allows an income tax deduction for such contributions. In addition, if funds are distributed from the account for the “qualified higher education expenses” of the beneficiary, then the investment income of the account is not included in the owner’s taxable income for federal tax purposes. Qualified higher education expenses generally refer to college or graduate school tuition, housing, food, textbooks, and related supplies.

The SECURE Act expands the definition of qualified higher educational expenses to include apprenticeship programs. Distributions for expenses related to an apprenticeship program, such as fees, books, supplies, and equipment required for participation in the program will qualify, as long as the program is registered with and certified by the Secretary of Labor.

Perhaps more significantly, the SECURE Act provides that amounts used to repay the qualified education loans of a beneficiary will also be deemed a qualified higher education expense. An account owner may use the 529 plan to repay up to $10,000 of the student’s loans. In addition, the qualified education loans of the student’s siblings may also be repaid from the 529 plan account, with a separate $10,000 limitation for that sibling. For example, if a person has three children, each with $10,000 of student loans, she could use $30,000 from one child’s 529 plan to repay all of those loans.

New Parents

There are usually substantial penalties for individuals making withdrawals from a retirement plan prior to attaining age 59½. However, the SECURE Act provides that there will not be a penalty on amounts up to $5,000 that are withdrawn by an account owner within one year of a birth or adoption of a child, even where the retirement account owner is younger than 59½. However, such withdrawals will nonetheless be considered income and will be subject to income tax.

Part-Time Employees

Prior to the enactment of the SECURE Act, in order for a part-time employee to be entitled to contribute to a 401(k) retirement plan, the employee must have worked for the employer for at least 1,000 hours during a 12-month period. Under the new law, if an employee has worked for 500 hours per year during three consecutive years, he or she would be eligible to participate in a company’s 401(k) plan. This will entitle many more workers to contribute to one of the most tax-effective means of saving for retirement.

Kiddie Tax

The investment income of a child may be taxed at a higher rate than income earned from a child’s employment. This higher rate of taxation is called the “kiddie tax.” The kiddie tax can apply to the investment income of a child who is a dependent and who is less than 19 years old (or if the child is a full-time student and is between ages 19 and 23). This tax was originally enacted in 1986 in response to individuals who were attempting to shift income to their minor children in order to have such income taxed at their children’s lower rates.

For many years, the kiddie tax was imposed at the income tax rates of the parents. The Tax Cut and Jobs Act of 2017 changed the kiddie tax rates to the income tax rates imposed upon trusts and estates. Since trusts and estates reach the highest income tax brackets at a much lower level of income, this resulted in hardship to many families. The SECURE Act restored the imposition of the parents’ income tax rates when calculating the kiddie tax.


The SECURE Act contains many significant new provisions. Besides the impact on the funding and distribution of retirement assets, the new law expands the uses of 529 college savings plans, allows for withdrawals for new parents, and provides lower rates of taxes for children’s income. It is important that you review your plan for your children’s education, your asset holdings, and your retirement accounts in order to determine if any changes and new planning should be implemented in light of the new law.

Daphne Stern, Esq. is an attorney practicing in Woodmere. She specializes in the area of wills, trusts, estate planning, and estate administration. Daphne may be reached at 516-295-0962, or by email at

Disclaimer: The author’s articles are provided for informational and educational purposes only and do not constitute legal advice. Publication of this information is not intended to create, and receipt or review does not constitute, an attorney-client relationship between the reader and the author. The information contained therein may be changed or rendered incorrect by future legislation or judicial developments. Readers should not rely on it in structuring or analyzing individual matters, and no action should be taken based on the ideas presented in these articles. Legal advice should be sought in connection with any such matter.


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