Broker Check


| January 03, 2020

Congress recently passed the Setting Every Community Up for Retirement Enhancement (SECURE) Act and the President is expected to sign it into law. This bill changes a number of laws that impact retirement saving and retirement planning. These changes will take effect in 2020.

Perhaps the largest change to the law that will impact the most people is that the bill increases the age at which individuals must begin taking Required Minimum Distributions (RMDs) from their tax deferred retirement accounts (IRA, 401k, 403b, etc.) from age 70.5 currently to age 72. For many retirees this will delay the year in which they need to start taking taxable income out of their retirement accounts. This is intended to make retirement income last longer and allow for more tax planning flexibility for many retirees.

Fortunately, the bill will not change the age at which investors can take Qualified Charitable Distributions (QCDs) from their IRAs. This will allow individuals who are over age 70.5 to continue to make charitable donations in a tax efficient manner.

In addition, the bill will eliminate the rule that prohibits IRA contributions for individuals over age 70.5. This will allow people who continue to work past age 70 to continue to contribute to tax-deductible retirement accounts.

The bill aims to increase access to 401k-type plans to more employees. Specifically, the bill contains provisions that will make it easier for small employers to provide their employees with a 401k-type retirement savings plan. In addition, the rules for 401k-type plans will be relaxed to provide increased access to part-time workers who may not currently meet the minimum hour requirement to be able to participate in their employer’s retirement plan. This will give more people access to a tax-deferred retirement savings vehicle.

The bill will also allow more 401k plans to offer an annuity payout option. Under this provision plan participants will have the option of giving their account balance to an insurance company in exchange for the promise of monthly income for life. In the past employers have been hesitant to offer this option as the potential liability should the insurance company fail or participants not realize the irrevocability of such a decision was viewed as too high. The SECURE Act will change the law to shift the liability from the employer to the employee so that employers may be more likely to offer this option. However, there is still some concern that many employees will not have access to impartial financial advice and may not be in a good position to make an informed decision. In addition, there are concerns about the high cost of many annuities which could lead to employees receiving poor advice that benefits the insurance company rather than the employee’s retirement.

The SECURE Act will also change the rules related to stretch IRAs. Starting in 2020 non-spouse beneficiaries will not be able to stretch the minimum distributions from newly inherited IRAs over their lifetime. Instead, the balance of an inherited IRA must be fully distributed and subject to income tax within 10 years of the owner’s death. This rule will greatly accelerate the pace at which beneficiaries must take distributions and pay income taxes on inherited retirement accounts.

It is important to note that this is just a brief summary of the SECURE Act. There are a number of additional provisions that will impact some taxpayers and retirees but not others. More information is available on the website for the House Ways and Means Committee.