Having passed the US House of Representatives and now moving quickly through the US Senate, the SECURE (Setting Every Community Up for Retirement Enhancement) Act appears to be on its way to soon becoming law. The SECURE Act will make numerous changes to how money is contributed to, and withdrawn from retirement accounts. While many of the Act’s provisions are administrative in nature, that is, they deal with the way retirement plans are administered, several provisions will directly affect retirement savings and withdrawals. Here are some of the more important ways the SECURE Act could affect your retirement savings:
First, the Act pushes back the time when retirement savers must begin taking distributions from their IRAs and other retirement accounts. Under current law, a person is required to begin taking retirement account distributions at age 70½, whether or not he or she wants to. The SECURE Act will push the age when required distributions must begin to age 72. This means that retirement savings may continue to grow untouched and untaxed for another year and a half before distributions must begin.
Next, the SECURE Act eliminates the age restrictions on IRA contributions. Americans are living and working longer. However, under current law a person may not contribute to an IRA after age 70½, even if still working. Under the SECURE Act, a person may continue to contribute to an IRA after age of 70½ if still working.
Finally, the SECURE Act changes the required minimum distribution rules with respect to IRA and other retirement account balances upon the death of the account owner. Under the Act, distributions to individuals other than the surviving spouse of the account owner, disabled or chronically ill individuals, individuals who are not more than 10 years younger than the account owner, or child of the account owner who has not reached the age of majority, are generally required to be distributed by the end of the tenth calendar year following the year of the account owner’s death.
Under current law, a non-spouse beneficiary of an IRA or defined contribution-type retirement account [such as a 401(k) or 403(b) account] may elect to “stretch” distributions from an inherited retirement account over his or her remaining life expectancy. For younger beneficiaries, this means that the remaining account balance has a longer time to grow tax deferred before being withdrawn, and the amounts withdrawn may be taxed at lower rates. The SECURE Act will accelerate distributions from inherited retirement accounts, reducing the time horizon for tax deferred growth and increasing the taxes that must be paid on the larger withdrawals.
This change will have an impact on beneficiary designations and estate plans, especially those situations in which a trust is named as a beneficiary of a retirement account.
Insofar as the SECURE Act will affect retirement saving and distributions in these and other ways, readers should plan to meet with a qualified legal or financial professional to determine the best way forward under the Act should it become law.
If you don’t have an attorney or financial planner, but would like to work with one, please give me a call. I can help.