The SECURE Act: Three Major Changes to Retirement Rules
This Tuesday the House of Representatives passed the Year-End spending bill to fund the government through 2020. This in and of itself is a really great thing for our country, however, what was “attached” to the spending bill may be even more powerful for you, the everyday investors. The Setting Every Community Up for Retirement Act of 2019, or commonly referred to as the SECURE Act, was attached to the spending bill which was sent to the Senate and is expected to vote on it by the end of the week. This act has been referred to as the most comprehensive retirement rules in a decade, so what are a few of the ways that this may affect you? Let’s take a look below:
• Required Minimum Distribution (RMD) age: The RMD is the amount that the IRS requires you to take from your traditional IRAs. 401(k)s have a similar rule, referred to as the Required Beginning Date (RBD). Currently, once you reach age 70.5 you must take funds out based on the account size and the IRS’ life expectancy table… Don’t work your financial institution will calculate this for you. The SECURE Act would increase the RMD age to 72, giving you a few additional years to further compound your tax-deferred earnings and/or take advantage of tax planning through Roth conversions.
• Pooled Employer Plans: Many small businesses have not started an employer retirement plan because of the costs associated with starting a plan with a small number of employees. The SECURE Act expands a small business’s ability to pool other unrelated small businesses together and start a plan with the employees of all the companies so that it can reduce the employer’s costs. This would be a benefit to you if your employer does not currently offer a retirement plan because it opens the door for them to consider it as an affordable option.
• Estate Planning: How you leave your heirs money matters. Upon your passing, your beneficiaries have a few options on how they want to receive the funds that remain in your retirement accounts. One of the common estate planning recommendations that advisors have been using with clients for years is what is called a stretch IRA. Your beneficiaries can “stretch” the income over their entire lifetime. This means they can minimize the amount of income that they are receiving while they are still earning a paycheck and maximize the tax-deferred compounding within the account. The SECURE Act would no longer require a beneficiary to take a minimum out every year, HOWEVER, all the funds would need to be withdrawn from the account within 10 years.
If you want to read more about what’s changing, you can use the links below.