Anticipating the SECURE Act: What Should You Know?
Congress has signaled that new legislation primarily affecting retirement assets is likely to pass and become law this year. We won’t know the full impact until the ink is dry on the bill, but in the meantime, here are some potential impacts to consider.
- Delayed Required Minimum Distribution. Many of you may be familiar with the Required Minimum Distribution (RMD) which comes into play for qualified retirement assets like IRA’s and 401(k)’s the year you turn 70.5. The new legislation extends or delays these required distributions until age 72.
Potential Impact: This is good news for savers who have adequate taxable savings, lots of other income, or don’t need their full Required Minimum Distribution.
- Elimination of stretch distributions for retirement account beneficiaries. Regardless of ages, many non-spouse retirement plan beneficiaries can currently take their required distributions (which begin in the year of inheritance) over their lifetime. With the new law, that option would be eliminated for many beneficiaries and instead distributions would be required to be completed within ten years.
Potential Impact: Inherited IRA’s come in all shapes and sizes. For small IRA’s or those divided into many beneficiary accounts, this may not hurt, but the tax bill for larger inherited IRA’s could be substantial. More careful planning for inheritance, Roth conversion strategies, and emphasis on charitable bequests and/or Qualified Charitable Distributions may be warranted.
- IRA Contributions Extended. With life expectancies increasing, more Americans work longer, but the ability to contribute to IRA’s was curtailed at age 70.5.
Potential Impact: If you love your job and want to keep working, decide on a second career, or have to keep working to make retirement work, this increases options for older American workers.
- Updates to 401(k) Plans. More workers would be eligible for 401(k)’s with more generous options for part-time employees, expanded annuity options within 401(k)’s, new options for small businesses to help make the 401(k) plan more attractive, and expanded auto-enrollment options.
Potential Impact: Many of these options seem to encourage successful use of retirement plans to expand coverage for more workers.
We’ll see what’s included in the final legislation. These are only the highlights from an unfinished potential bill. We’ll keep you informed if the legislation becomes law. In the meantime, recognize that while there is little in Washington that two parties and two houses can agree on, the importance of successful retirement savings is something that can afford the country unity. Make sure your retirement planning is a top priority just like it is for our elected officials.
Required Disclosure: Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person’s situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.