On May 23rd 2019, the House of Representatives passed the Setting Every Community Up for Retirement Enhancement (SECURE) Act. The next step is to pass through the Senate and be signed by the President.
With strong bipartisan support and the Senate already considering changes for retirement plans, many agree that this is likely to happen. The act's goal is to make it easier for small businesses to provide a retirement plan and increase the number of Americans with access to a plan.
While making retirement plans more available was the driving force behind the SECURE Act, there are also some changes within the bill that all retirement savers should know for planning purposes.
Today we will be highlighting some of the most significant changes:
- Increasing the RMD age from 70 1/2 to 72
This new legislation calls for an increase in age for required beginning date for mandatory distributions. Under current law, participants are generally required to begin taking distributions from their retirement plan at age 70 1/2. The policy behind the Required Minimum Distribution (RMD) rule is to ensure that individuals spend their retirement savings during their lifetime and not use their retirement plans for estate planning purposes to transfer wealth to beneficiaries. The age 70 1/2 was first applied for retirement plans in the early 1960s and has never been adjusted to consider increases in today's life expectancy. The bill increases the required minimum distribution age from 70 1/2 to 72.
- Allowing someone over 70 with earned income to still contribute to an IRA
One key change that the SECURE Act calls for is a repeal of maximum age for traditional IRA contributions. Specifically, this legislation repeals the prohibition on contributions to a traditional IRA by an individual who has attained age 70 1/2. As Americans live longer, an increasing number continue employment beyond traditional retirement age and this allows Americans with earned income to keep contributing to retirement plans after age 70.
- Changes to "Stretch IRAs"
A new provision in the SECURE Act could remove most non-spousal beneficiary's ability to maximize tax-savings through a strategy known as the "Stretch IRA." The Stretch IRA allows younger beneficiaries like children or grandchildren to take required minimum distributions from the inherited account based on their own much longer life expectancy. This new bill would force a distribution of the account's value within 10 years of the original owner's death.
Stay tuned for more updates and highlights from us as progress is made!
This article is for informational purposes only. This information is not intended to be a substitute for specific individualized tax, legal or investment planning advice as individual situations will vary. For specific advice about your situation, please consult with a financial professional, tax professional or lawyer.