SECURE is an acronym for “Setting Every Community Up for Retirement Enhancement Act” of 2019. Here are some of the highlights from the legislation.
Required Minimum Distributions from Retirement accounts:
Your required minimum distribution (or RMD) will soon begin at age 72 (not 70.5). Just know that if you are reading this and you’ve already begun taking your RMD, this won’t apply to you.
Stretch IRA will be not-so-stretchy:
Under the SECURE Act (and starting next year, 2020), individuals who are non-spouse beneficiaries will no longer be able to “stretch” this account over their lifetime. Under the SECURE act, they will now have ten years (from the time the account is inherited) to clear out the entire balance. That will be (and has always been) a taxable distribution. Please note this does not mean those who have money through a beneficiary IRA need to take ten equal installments. Those folks could technically do nothing, then withdraw the whole magilla in year ten.
Traditional IRA contributions under the SECURE Act:
Individuals may contribute to traditional IRA’s beyond age 70.5. Previously, this was not permitted. Again, individuals may make contributions as long as they have earned income.
Small plan 401k’s:
Small companies can, under the SECURE Act now band together to form a “group 401k plan.” Establishing a 401k plan has always been a problem for small businesses, primarily due to the costs and expensive record-keeping. Since many folks work for small companies, it will be interesting to see how this unfolds in coming years.
Expecting a child? Your retirement plan can help?
If you are expecting or adopting a child, the SECURE Act provides for penalty-free withdrawals from retirement plans for any “qualified birth or adoption distributions.” My only hesitation is to remind folks that raiding your retirement fund – for ANY reason – is a bad idea. If you are considering tapping into your retirement plan at work, talk with a financial planner first!
Annuity Options Find their way into 401k plans:
Under the SECURE Act, company retirement plans can now offer annuities inside their plan. This could be a good development, but it also brings the potential to become a bad development in the future.
— Potential “good news”
Permitting immediate annuities inside 401k plans will allow retirement plan savers to turn their 401k account into a steady stream of income to last the rest of their lives. Brendan and I have discussed on Mullooly Asset Management podcast episodes how this may actually be a “better way” for plan participants to view their retirement accounts. Many (most?) retirement plan savers look at this gigantic pile of money. For many, this is the single largest amount of money ever amassed in their name. For many, this can be overwhelming. but rather look at this account in terms of “what kind of monthly income can I get from this pile of dough for the rest of my life?”
— Potential “bad news”
Annuities can be a very expensive way to invest. In fact, it’s difficult for some to explain how an annuity actually IS an investment. It’s an insurance product, and some versions of annuities are actually unregulated and not considered investments by regulatory agencies. At the present time, it appears the only annuity options are as described above, lifetime income options. But this is a “foot in the door” for insurance companies. Once you see one cockroach in the kitchen, your work is just beginning – there’s never just one. Deferred annuities and some of the exotic choices created for annuity buyers are some of the most expensive ways to invest. It will be interesting to see (over time) what kind of options will be permitted inside company retirement plans.
Expansion of uses for 529 accounts
The SECURE Act expands 529 education savings accounts to cover costs associated with registered apprenticeships; homeschooling; up to $10,000 of qualified student loan repayments (including those for siblings); and private elementary, secondary, or religious schools.
Here is a link to the summary document from the House Ways and Means.