For the last six months, the SECURE Act (Setting Every Community Up for Retirement Enhancement ) was in legislative limbo. Like a Hail Mary pass with time expiring, it got attached to the current fiscal year spending bill and became the law of the land. Let’s review a few key points.
By delaying the beginning date for required distributions from Traditional IRAs and employer-sponsored retirement plans to age 72 from 70 ½, some will see a tax benefit. The SECURE Act also eliminated the age restriction on IRA contributions; as long as you work, you can contribute. Nearly 20% of those in their early 70s still work, and these two measures could help them. Along with the tax breaks, the legislation included provisions to expand 401K plan availability. Small business owners get an increased tax credit for establishing 401K plans with automatic enrollment. A hindrance for small business owners is the overhead cost of 401K plans.
The SECURE Act makes it easier for small business owners to band together and get economies of scale available to larger businesses. The new law also requires plan providers to indicate on quarterly statements how much lifetime income their current savings will support. Also included are ways to incorporate lifetime income via annuities in 401K plans.
Mark Twain, responding to rumors he had died, wrote a friend with the wry comment, "The report of my death was an exaggeration." Some pundits, in print and social media, ominously warn the SECURE Act killed the Stretch IRA. Like Twain, the death of the Stretch IRA is greatly exaggerated. For spouses, nothing changes. A surviving spouse can take distributions based on their life expectancy. However, non-spouse IRA or retirement plan beneficiaries must take distributions within 10 years.
Ed Slott, the noted IRA guru, claimed Congress made "changes in the ninth inning," but he mischaracterizes the legislation. Nothing changes for anyone who currently has an inherited IRA. Instead, it is the first inning of a new game with different rules.
Last August, after the SECURE Act passed the House of Representative, a leading Republican, Kevin Brady of Texas, pointed out IRAs are not "wealth succession management tools." Imagine the uproar from Fox News if Senator Warren or Sanders had voiced a similar opinion. IRAs and retirement plans have tax advantages for the owner and their spouse, not subsequent generations. A child or grandchild still has 10 years to spread the distributions; it’s not confiscatory. More importantly, the new limits on Stretch IRAs, not elimination, will generate over $1 billion annually, offsetting the tax cuts from raising the age for required minimum distributions. We always hear how tax cuts pay for themselves like magic. For once, Congress passed a tax cut with a mechanism to reduce its cost. Never in our country’s history have we run deficits this large during times of relative prosperity.
You can’t always get what you want, but Buz Livingston, CFP, can help you figure out what you need. For specific advice, visit livingstonfinancial.net or drop by 2050 West County Highway 30A, M1 Suite 230.