How The New SECURE Act Could Affect Your Retirement Account

The SECURE Act has passed.

Back in June of last year, shortly after the House of Representatives passed the SECURE Act on May 23rd, I wrote a piece for our newsletter anticipating that the act would go all the way through the Senate highlighting the main components of the new act. I am posting the same piece again with slight revisions since the Act went into effect on January 1 of this year.

One of the things Victoria and I do to prepare for new clients and continue to serve current clients is to keep abreast of changes in the law that may impact planning for retirement and long-term care. One of those changes is the Setting Every Community Up for Retirement Enhancement Act of 2019 also known as the SECURE Act. On May 23, 2019, the U.S. House of Representatives passed the SECURE Act by a vote of 417 to 3 and the Senate also passed the act in December.

Retirement Savings Challenges

This is the biggest change to the U.S. retirement system since 2006 and the Pension Protection Act. The reasons the Act went through are many. Americans are living and working longer than ever before, and too many have inadequate savings as they enter retirement. Currently, 40% of private-sector workers do not have access to a workplace retirement plan. The SECURE Act will increase workers’ access to retirement savings and allow them to make contributions for as long as they are working.

The significance of the SECURE Act is that it will impact all employer-provided retirement plans, individual retirement accounts (IRAs), and other tax-favored savings accounts and chances are you have at least one of those types of accounts. There are several aims of the act including:

to allow expenditures from retirement plans for childcare and other qualified expenses within a year of birth or adoption without the penalty
to allow certain penalty-free withdrawals to pay off student loans
to help small businesses set up retirement plans

Distribution Deferment

As mentioned above, the SECURE Act will also help those saving for retirement by allowing you to defer required minimum distributions (RMDs) until age 72 rather than 70 ½. In addition, you can continue making contributions after age 70 ½ letting your savings grow that much more.
The SECURE Act also sets limitations for IRAs inherited by non-spouse beneficiaries. Specifically, such beneficiaries will be required to withdraw the entire amount from such IRAs within 10-years of the original IRA owner’s death and thus pay the resulting taxes. While it can be very gratifying to see a retirement account’s value grow, there is the pain that occurs when withdrawing from a tax-deferred account because then taxes must be paid. Now the recommended strategy for most inherited IRAs is to maximize growth by prolonging or stretching out IRA payments for as long as possible and under current law that can be as long as the life expectancy of the beneficiary. But imagine if you inherit a fairly large IRA from your mother or father and you are then required to distribute the entire amount and pay the taxes on it within 10 years of their death?

We at Red Feather Financial are ready to help you understand how the changes are going to affect your retirement accounts. We are hosting a seminar for our clients to go over the details of the new Act in order to help you understand how the new act is likely to affect your retirement account. Be aware that you may require a change in your financial and/or estate planning if you anticipate inheriting a large retirement account or have a large retirement account that you plan to pass on to someone other than your spouse.

Stay tuned for the date of the upcoming informative seminar.