For some time now, we’ve been following the SECURE Act as it made its way through Congress. Now the retirement savings reform bill has become law, and we wanted to offer an update on its provisions.
The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 broadens the effectiveness of individual retirement accounts and employer-sponsored retirement savings plans. Essentially, it expands access to tax-advantaged retirement savings accounts and, ultimately, aims to help Americans save enough for a secure retirement. That’s a goal we can all get behind.
Among other things, the act:
- Provides a startup credit to make it easier and more affordable for small businesses to set up retirement plans for their employees, even allowing them to band together to set up a plan for their collective employees.
- Introduces a credit for those small employers who encourage savings through automatic enrollment, which has been shown to increase employee participation and boost retirement savings.
- Removes the age cap that limits contributions to traditional IRAs after age 70½, which would give working people more time to contribute toward retirement.
- Delays required minimum distributions (RMDs) until age 72, which allows the account to continue growing as life expectancies increase.
The SECURE Act also eliminates the “stretch IRA,” an estate planning strategy that allowed much-younger beneficiaries to inherit an IRA and “stretch” the required minimum distributions across their actuarial life expectancies. Basically, the heirs received smaller RMDs over a longer period of time until the money ran out, reducing their tax liability on the withdrawals. In the meantime, the account would continue to grow tax-deferred.
Withdrawals over a lifetime are no longer an option for inherited defined contribution accounts. The SECURE Act gives non-spouse beneficiaries (including trusts) just 10 years to withdraw all the money from inherited IRAs, 401(k)s or other defined contribution plans. These supersized distributions are likely to trigger higher taxes for heirs, with few exceptions.
As we sort through the potential tax, retirement and estate planning implications, we will reach out again if we need to adjust your plans. Thank you, as always, for your continued trust in us.
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