Without looking, can you tell me what the SECURE in The SECURE Act of 2019 stands for?
Of course, by now, everyone knows the answer is The Setting Every Community Up For Retirement Act of 2019.
I guess the title The Sleeping Comfortably After Retirement Every Day Act of 2019 was taken.
I downloaded the bill and there are 29 provisions in total. I am not going to review all of them but if you want to read it, click here and it will take you to the bill.
Traditional IRA Contributions and Required Minimum Distributions
The SECURE Act recognizes that life expectancy of individuals has increased over the years. If passed as proposed, IRAs and 401(K)s will see two major changes:
1. Recognizing that as people live longer, they are working beyond traditional retirement age, the bill would repeal the age cap for contributing to a traditional IRA. This allows people with taxable income past age 70 ½ to continue contributing to their traditional IRA, giving them parity to a Roth IRA in this regard.
2. The age to begin taking Required Minimum Contributions for IRAs and 401(K)s would increase to age 72 from age 70 ½.
10 Year Rule
The SECURE Act would limit inherited IRA stretch to 10 years. Exceptions would include the surviving spouse, disabled or chronically ill individuals, individuals who are not more than 10 years younger than the IRA owner, and minor children. I did not see any changes specifically stated for IRA trusts or a trusteed IRA and modification may occur later through legislation or the Treasury.
Lifetime Income and Annuities for 401(K)s
The SECURE Act will require employers to show how much lifetime monthly income a participant’s IRA balance would support and would allow buying an annuity in a 401(K) plan.
Cut the Credit Card in Half
The SECURE Act would prohibit distribution of plan loans through credit cards or similar arrangements.
More Part Time Employees Included
The bill will require inclusion of employees either under the 1,000-hour rule or if they have three consecutive years of 500 hours of service.
The Stork Provision
The bill would allow IRA owners and 401(K) participants to take penalty free distributions of up to $5,000 within a year of the birth or adoption of a child to cover associated expenses.
Expansion of 529 Plans to Educate that Child
The legislation expands 529 plans to cover up to $10,000 of qualified student loan repayments. Missing from the Act were provisions included in House and Ways Committee Bill that additionally allowed the cost associated with homeschooling. To see the Ways and Means Committee Bill, click here.
Permits multi-employer 401(k) plans for small businesses
The bill expands employers’ abilities to offer multi-employer plans, as long as they have the same trustee, fiduciary, administrator, plan year and investment options.
Smaller Employer Automatic Enrollment Tax Credit
The SECURE Act would create a new tax credit of up to $500 a year to help defray startup costs of new Simple IRAs and 401(K) plans. This credit is in addition to the startup credit allowed under current law and would be available for three years. The credit would also be available to employers who convert existing plans to automatic enrollment plans.
Paying for This
According to the joint congressional Committee on Taxation, the change in the non-spousal beneficiary stretch IRA for to the 10-year rule will generate $16 billion of revenue over the next ten years.
In addition, there will be increased penalties for failure to file and failure to file retirement plan returns.
This bill next goes the Senate where a similar bill known as the Retirement Enhancement and Savings Act or RESA has yet to be voted out of committee.
While RESA largely mirrors the house bill, it contains 50 provisions. It proposes increasing the age for RMDs to 75. It also modifies the 10-year rule by requiring distributions for non-spousal beneficiaries within five years for accounts worth $400,000 or more.
It then goes to President Trump who is expected to sign it.
Due to changes in the IRA Stretch provision, IRA owners wishing to leave an inheritance for a non-spousal beneficiary’s lifetime may have to look at vehicles like IRA Accumulation Trusts.