SECURE After All?

You can be forgiven if you have forgotten the mild hoopla in the press last May, when the U.S. House of Representatives passed something called the SECURE Act (Setting Every Community Up for Retirement Enhancement) by a 417 to 3 margin.  It seemed at the time like the measure would sail through the Senate—until it became clear that the Senate was not planning to take up any House-passed legislation in 2019.

That was then.  Not only did the SECURE act make it past the Senate but was signed into law by President Donald Trump on December 20^th, 2019.

What does that mean for financial consumers?  Among other things, the new law increases the tax credit for small businesses to set up new retirement plans for their employees, from $500 to $5,000.  It allows small employers to automatically enroll their employees and lets smaller companies to create multiple employer plans with other companies in the area, reducing the obstacles to offering 401(k) and other retirement plans.  A great deal of insurance industry lobbying support went into another provision that requires all qualified plans to show participants how they can convert their existing balances into “lifetime income” through an annuity.

Of more substance to many financial consumers is the provision allowing people to delay taking out required minimum distributions from IRAs to 72 years of age, updated from what was previously 70 ½.  Another massive change is that people who inherit IRAs are required to take the money out over a ten year period, instead of over their lifetimes (the so-called “stretch” provision).  This last change has significant tax implications, since previously an IRA inheritor age 25 would only have to take out 1/58th of the money in that year, 1/57th the year after, and so forth for the rest of his/her life.  Taking all the money from a large IRA out in the tenth year after inheritance could have potentially severe tax consequences on the unsuspecting inheritor.

Also: for people who are working past age 70 ½ , they can now contribute to an IRA, just like could a Roth IRA.  The bill also allows families who adopt or have newborn children to take out up to $5,000 from their retirement plan without the usual 10% early distribution penalty.

In all, the SECURE bill has 29 new provisions or major changes in 20 sections.  Financial planners will be studying these provisions and how they impact their clients, to see whether it changes their advice on tax and estate planning in the future.

This article was written by an independent writer for Brewster Financial Planning LLC and is not intended as individualized legal or investment advice.