If passed, it would change some long-established retirement account rules.
Did you ever wonder why retirement savings accounts seem so confusing? We have the traditional 401(k), Roth 401(k), 403(b), 457, traditional IRA, Roth IRA, SIMPLE IRA, SEP IRA and profit-sharing plans. Each plan has certain quirks and rules. So why do we have such a confusing mess? The House and the Senate create bills that are signed by various presidents over the past 35+ years, the IRS is involved and…You get the picture, right?
Well once again, they are working on it for “we the people” and the SECURE Act is a work in progress. If you have not been following it in the news, please take a read here to see how it might impact you when/if it is finished.
J Douglas Floro, CFP®
If you follow national news, you may have heard of the Setting Every Community Up for Retirement Enhancement (SECURE) Act. Although the SECURE Act has yet to clear the Senate, it saw broad, bipartisan support in the House of Representatives.
This legislation could make Individual Retirement Accounts (IRAs) a more attractive component of retirement strategies and create a path for more annuities to be offered in retirement plans – which could mean a lifetime income stream for retirees. However, it would also change the withdrawal rules on inherited “stretch IRAs,” which may impact retirement and estate strategies, nationwide.1
Let’s dive in and take a closer look at the SECURE Act.
The SECURE Act’s potential consequences. Currently, traditional IRA owners must take annual withdrawals from their IRAs after age 70½. Once reaching that age, they can no longer contribute to these accounts. These mandatory age-linked withdrawals can make saving especially difficult for an older worker. However, if the SECURE Act passes the Senate and is signed into law, that cutoff will vanish, allowing people of any age to keep making contributions to traditional IRAs, provided they continue to earn income.1
(A traditional IRA differs from a Roth IRA, which allows contributions at any age as long as your income is below a certain level: at present, less than $122,000 for single-filer households and less than $193,000 for married joint filers.)2
If the SECURE Act becomes law, you won’t have to take Required Minimum Distributions (RMDs) from a traditional IRA until age 72. You could actually take an RMD from your traditional IRA and contribute to it in the same year after reaching age 70½.3
The SECURE Act would also effectively close the door on “stretch” IRAs. Currently, non-spouse beneficiaries of IRAs and retirement plans may elect to “stretch” the required withdrawals from an inherited IRA or retirement plan – that is, instead of withdrawing the whole account balance at once, they can take gradual withdrawals over a period of time or even their entire lifetime. This strategy may help them manage the taxes linked to the inherited assets. If the SECURE Act becomes law, it would set a 10-year deadline for such asset distributions.4
What’s next? The SECURE Act has now reached the Senate. This means it could move into committee for debate or it could end up attached to the next budget bill, as a way to circumvent further delays. Regardless, if the SECURE Act becomes law, it could change retirement goals for many, making this a great time to talk to a financial professional.
Securities and Advisory Services offered through Geneos Wealth Management, Inc.
This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
1 – financial-planning.com/articles/house-votes-to-ease-rules-for-rias-correct-trump-tax-law [5/23/19] 2 – irs.gov/retirement-plans/amount-of-roth-ira-contributions-that-you-can-make-for-2019 [6/18/19] 3 – congress.gov/bill/116th-congress/house-bill/1994 [6/17/19] 4 – shrm.org/resourcesandtools/hr-topics/benefits/pages/house-passes-secure-act-to-ease-401k-compliance-and-promote-savings.aspx [5/23/19]