What the SECURE Act Could Mean for Retirement Plans If passed, it would change some long-established retirement account rules.
Provided by American Financial Advisors, LLC
If you follow national news, you may have heard of the Setting Every Community Up for Retirement Enhancement (SECURE) Act. Although the SECURE Act has yet to clear the Senate, it saw broad, bipartisan support in the House of Representatives passing with a vote of 417-3. The Senate seems likely to approve the legislation, perhaps with subtle changes, and send it to the President for his signature.
This legislation could make Individual Retirement Accounts (IRAs) a more attractive component of retirement strategies and create a path for more annuities to be offered in retirement plans. Annuities are one strategy that can help retirees better plan their retirement spending - ensuring they do not outlive their savings.
However, it would also change the withdrawal rules on inherited “stretch IRAs,” which may impact retirement and estate strategies, nationwide.1
Let’s dive in and take a closer look at the potential consequences of the SECURE Act – both positive and negative.
More options for contributions and RMD’s: Currently, traditional IRA owners must take annual withdrawals from their IRAs after age 70½. Once reaching that age, they can no longer contribute to these accounts. These mandatory age-linked withdrawals can make saving especially difficult for an older worker. However, if the SECURE Act passes the Senate and is signed into law, that cutoff will vanish, allowing people of any age to keep making contributions to traditional IRAs, provided they continue to earn income.1
A traditional IRA differs from a Roth IRA, which allows contributions at any age as long as your income is below a certain level. At present, less than $122,000 for single-filer households and less than $193,000 for married joint filers.2
If the SECURE Act becomes law, you won’t have to take Required Minimum Distributions (RMDs) from a traditional IRA until age 72. In effect, you could take an RMD from your traditional IRA and contribute to it in the same year after reaching age 70½.3
Unfortunately, the SECURE Act does not add reprieve for individuals who turned 70.5 in 2018 or 2019. The amendment only applies to individuals who attain age 70.5 after December 31, 2019. As a result, someone born on June 30, 1949 will be required to begin distributions in 2019 whereas someone born a day later (July 1, 1949) will get to wait until 2021 to begin distributions.
It is important to note that the bill does not impact the Qualified Charitable Distribution (QCD) rule which will remain in effect for someone turning age 70.5. This means that individuals who reach age 70.5, even though they will not be subject to required minimum distributions if the new rule is enacted, can still make gifts from Traditional IRA accounts directly to charities without the distributions being treated as income for tax purposes.
Portability for annuities in IRA’s. The SECURE Act will allow for greater portability of retirement accounts – particularly annuities. Under current legislation, if an employee selected an annuity from an employer sponsored plan, they are generally prohibited from taking that annuity with them to another plan. Instead, they are required to liquidate the annuity – resulting in fees, extra costs, and loss of savings for the participant.
The SECURE Act will allow participants to either keep the annuity or roll it into another qualified plan – allowing greater portability.
Help with expenses related to the birth or adoption of a child. The Act would also allow new parents to withdraw $5000 penalty-free from retirement accounts to help cover expenses related to the birth or adoption of a child.
The End of the “Stretch” IRA. One of the potential negative impacts of the SECURE Act is that it would effectively close the door on “stretch” IRAs. Currently, non-spouse beneficiaries of IRAs and retirement plans may elect to “stretch” the required withdrawals from an inherited IRA or retirement plan based on their age. That is, instead of withdrawing the whole account balance at once, they can take gradual withdrawals over a period of time - or even their entire lifetime.
For relatively young beneficiaries, this stretch benefit can be worth millions of dollars if employed effectively. This strategy may help them manage the taxes linked to the inherited assets. If the SECURE Act becomes law, it would set a 10-year deadline for such asset distributions, potentially increasing the taxes associated with the accelerated withdrawals.
What’s next? The SECURE Act has now reached the Senate. This means it could move into committee for debate or it could end up attached to the next budget bill as a way to circumvent further delays.
Regardless, if the SECURE Act becomes law, it could change retirement goals for many, making this a great time to give us a call at AFA.
Please call us at (770) 977-2434, send an email to This email address is being protected from spambots. You need JavaScript enabled to view it. or visit our website at http://afainvestments.com/
This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
Citations.
1 - financial-planning.com/articles/house-votes-to-ease-rules-for-rias-correct-trump-tax-law [5/23/19]
2 - irs.gov/retirement-plans/amount-of-roth-ira-contributions-that-you-can-make-for-2019 [6/18/19]
3 - congress.gov/bill/116th-congress/house-bill/1994 [6/17/19]
4 - shrm.org/resourcesandtools/hr-topics/benefits/pages/house-passes-secure-act-to-ease-401k-compliance-and-promote-savings.aspx [5/23/19]
