The New SECURE Act
Updated: Mar 11, 2020
The Setting Every Community Up for Retirement Enhancement (SECURE) Act, was passed by the Senate on December 19, 2019. This bill increased access to retirement plans and also includes some reforms to Defined Contribution (DC) Plans, Defined Benefit (DB) plans, Investment Retirement accounts (IRAs) and 529 plans. Open Multiple Employer Provisions (MEP’s) will be effective January 1, 2021, but many of the other provisions in the law become effective January 1, 2020. The SECURE Act also brought changes for retirement plan holders. We will try to help you with updates as your situation requires this year.
Among the many changes the SECURE Act included, we feel there are three major areas that could affect many client’s retirement planning strategy.
1. One of the most impactful provisions of the SECURE Act is the “death” of the stretch IRA as an estate planning tool for most non-spousal beneficiaries. If the original owner of an IRA passes away after December 31, 2019, fewer beneficiaries will be able to extend distributions from the inherited IRA over their lifetime. Many will instead need to withdraw all assets from the inherited IRA within 10 years following the death of the original account holder.
Exceptions to the 10-year distribution requirement include assets left to a surviving spouse, a minor child, a disabled or chronically ill individual, and beneficiaries who are less than 10 years younger than the decedent. Please note that this new rule will only apply to IRAs inherited after the January 1st, 2020 effective date. All existing inherited IRAs are grandfathered in under the old rules. This NEW change will result in us taking a look at all clients that have accumulated retirement assets to discuss potential strategies that could be best for their situation.
2. Another notable change is the RMD age moved from 70½ to 72. The Act states that this change applies beginning with IRA account owner who will attain age 70½ on or after January 1, 2020. This was in response to the fact that Americans are currently working and living longer. Congress updated RMD rules to reflect changes in life expectancies.
3. Allowing anyone with earned income the ability to contribute to an IRA after age 70½. The SECURE Act permanently removes the age limit at which an individual can contribute to a traditional IRA. Previously, an individual could only contribute to ROTH IRAs after age 70½, as they have no age limit. Starting in 2020, the SECURE Act allows anyone that is working and has earned income to contribute to a traditional IRA regardless of age.
Another notable change the SECURE Act will bring is to 529 Plans. These tax-advantaged 529 plans will be allowed to help pay off qualified student loan repayments (up to $10,000 lifetime).
Many provisions of the SECURE Act will be subject to the interpretation of the IRS or other authorities. As always, clients should consider consulting with their personal tax advisor regarding their specific situation.
Determining the most efficient ways to either withdraw or pass to your beneficiaries your accumulated wealth is always an important decision. Our goal is to remain aware of changes that affect our clients and then share those changes with them.
We firmly believe in proactive tax planning and we will review the SECURE Act for proactive tax planning opportunities and share our findings with our clients.
Our goal is to work with clients to explore efficient ways to drawdown retirement savings and transfer wealth. If you would like to discuss your retirement plan and withdrawal strategy, please call us. As always, we appreciate the opportunity to assist you in addressing your financial goals.
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