Accretive On: The SECURE Act

May 25, 2019

The Setting Every Community Up for Retirement Enhancement (SECURE) Act made headlines this week as the House of Representatives voted 417-3 in favor of the bill to send it on to the Senate. In addition to overhauling many US retirement plans and rules, it also received tremendous bipartisan support, which isn’t a common occurrence in today’s political landscape. While the bill still needs to get through the Senate, and then get signed into law by the President, we thought it would be worthwhile to share some information on the bill and our thoughts. So, if you or a family member work for a small company, are a new parent, are employed part-time, have retirement accounts and are approaching age 70, or have an estate plan that includes passing along retirement assets to your heirs, then you might be interested in what this bill may mean to you if passed into law.  

  • Congress is recognizing increases in longevity.  The bill proposes increasing RMD age from 70.5 to 72 because people are simply living a lot longer than they used to. While this could be good news to many, it also could cause complexity for those with defined benefit plans and/or are currently using Qualified Charitable Distributions as part of their retirement planning strategy. We also have questions on what this would mean for those who are 70/71 if or when the bill is passed into law, but at least there would be one less “half-birthday “to track.  
  • Congress is also tired of waiting to collect taxes from heirs on retirement accounts.  For us at Accretive, the provision of the bill that we think could have the biggest impact to an existing plan is the requirement that IRAs inherited by non-spouse beneficiaries be depleted within 10 years. This would be an essential repeal of the Stretch IRA and could alter many clients’ existing estate plans. For many retirees, their largest account balances are typically within tax-deferred retirement accounts. Under today’s rules, IRAs can be stretched out over a beneficiary’s lifetime, offering potential decades of tax-deferred (or tax-free for Roth IRAs!!) compounded growth.  Lest anyone think the Senate has a different view or objective, the upper chamber currently has a proposal that would require a 5-year payout for IRAs with balances above $450,000.  We’ll have to see how the final bill shakes out, we expect there to be horse-trading and lobbying, but it seems clear that both branches of government would like to accelerate revenue to the government by forcing IRA money out sooner rather than later.

In addition to the points above, the bill includes additional items to ease access to retirement plans in general, expand access to retirement funds for certain purposes (like adoption), as well as clarifications on and safe harbors for the use of annuities with a lifetime income option in 401k plans.  The bill would also end the prohibition on Traditional IRA contributions for those over age 70.5.  

While we don’t know the precise future of this bill, or exactly how it’ll be reconciled with a Senate bill as we write this today, the amount of bipartisan support leads us to believe substantial changes are coming. Given the number of expected changes, and the likelihood of something passing both houses, we think revisiting your retirement and estate plan with your trusted wealth advisor could become a priority later this year.

Financial Planning

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