The SECURE Act and How it Could Impact You

Amidst the holidays and impeachment proceedings, Congress passed the first major piece of retirement legislation in more than a decade, the Setting Every Community Up for Retirement Enhancement (SECURE) Act.

This legislation has been in the works for several years and aims to help people set aside more money for retirement by expanding retirement savings and increasing access to workplace retirement plans. While the legislation includes several changes, there are a few notable ones that immediately affect all retirees and savers:

• Elimination of the Stretch IRA – Current law allows for beneficiaries who inherit an IRA or retirement plan assets from someone other than a spouse (such as a parent), to spread distributions and the taxation of those distributions over the course of their own life expectancy. The SECURE Act will now require most non-spouse beneficiaries to withdraw all assets out of the inherited IRA within 10 years – Congress wants those assets out of retirement accounts and subject to taxation. There will be no required minimum distributions (RMDs) each year, with the only requirement that all money is taken out within 10 years of the account owner’s death. If you have already inherited an IRA, this change does not apply to you and RMDs will continue as planned. There are exceptions to the 10-year rule including assets left to a surviving spouse, minor child, a disabled or chronically ill individual, and all beneficiaries who are less than 10 years younger than the decedent. The new rule makes retirement and estate planning more complex, and we are happy to review all beneficiaries on file and work with your estate planning attorney and tax advisor to see if any updates are needed. It will be especially important to review your estate plan with your attorney if you have named a trust to receive your retirement account.

• Increasing the Required Minimum Distribution Age (RMD) to Age 72 – The new RMD age of 72 only applies to individuals who have not yet reached the age of 70 ½ by the end of 2019. The increase is not a huge change, but any relief is welcome for clients reaching the RMD age and only take them because they are required to do so. The ½ year age trigger was also confusing to many, so that is an added benefit as well. There are no other changes to the RMD rules, and individuals still have the option to delay their first RMD until April 1 of the year following the year which they turn age 72. An important note is that there is no change to the age at which an individual can make a Qualified Charitable Distribution (QCD) from their IRA. What this means is that QCDs are still allowed at 70 ½, so while an individual may not be required to take an RMD at age 70 ½, they can still use their IRA to make a QCD of up to $100,000 for the year.

• Traditional IRA Contributions Beyond Age 70 ½ - As Americans are living and working longer and increasingly working part-time, the new rule matches the current regulations for 401(k) plans and Roth IRAs, which allow individuals to continue contributing so long as they are working.

The SECURE Act also has several other changes, such as a 529 education savings account change allowing tax-free withdrawals up to $10,000 for the repayment of some student loans, and a new exception to the 10% early distribution penalty from an IRA or retirement plan, allowing as much as $5,000 withdrawn for the birth or adoption of a child. One of the more controversial features includes making it easier for employers to offer annuities in retirement plans, with the complexity of annuities and higher fees associated with those products a concern for many consumer advocates.

We will be working with all clients to see how the new legislation may affect you, and we also expect that the Internal Revenue Service will be providing additional interpretation and guidance on several of these provisions.

As always, please contact our office with any questions.

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