How the SECURE Act Impacts Retirement Planning Options for Americans

The House of Representatives recently passed a bill that may have far reaching effects on retirement planning options for Americans.  The House passed the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 on May 23 of this year.  The law encourages more small employers to offer 401(k) plans and SIMPLE IRAs due to a tax credit for the employer.  Also, under current law, participants are generally required to begin taking distributions from their retirement plan at age 70 ½. The policy behind this rule is to ensure that individuals spend their retirement savings during their lifetime and not use their retirement plans for estate planning purposes to transfer wealth to beneficiaries. However, the age 70 ½ was first applied in the retirement plan context in the early 1960s and has never been adjusted to take into account increases in life expectancy. The new bill increases the required minimum distribution age from 70 ½ to 72 which will allow for potentially longer tax deferred growth.

The legislation also expands 529 education savings accounts to cover costs associated with registered apprenticeships; homeschooling; up to $10,000 of qualified student loan repayments (including those for siblings); and private elementary, secondary, or religious schools.

There are, however, changes that consumers should be aware of. The new law would let employers off the hook for the outcomes of certain annuities, which guarantee some future income.  The legislation provides certainty for plan sponsors in the selection of lifetime income providers, a fiduciary act under ERISA. Under the bill, fiduciaries are afforded an optional safe harbor to satisfy the prudence requirement with respect to the selection of insurers for a guaranteed retirement income contract and are protected from liability for any losses that may result to the participant or beneficiary due to an insurer’s inability in the future to satisfy its financial obligations under the terms of the contract.

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Another major change in the law would shorten the amount of time that someone who inherits an Individual Retirement Account (IRA) can stretch out their required minimum distributions under the IRA, potentially causing them to lose money.   The legislation modifies the required minimum distribution rules with respect to defined contribution plan and IRA balances upon the death of the account owner. Under the legislation, distributions to individuals other than the surviving spouse of the employee (or IRA owner), disabled or chronically ill individuals, individuals who are not more than 10 years younger than the employee (or IRA owner), or child of the employee (or IRA owner) who has not reached the age of majority are generally required to be distributed by the end of the tenth (10^th) calendar year following the year of the employee or IRA owner’s death.  That is a big change from the current rule.

To learn more about the SECURE Act and how it effects your retirement planning options, contact us today to speak to a knowledgeable estate planning attorney at Bratton Law Group. We understand how retirement accounts work and can advise you on how to safely utilize these accounts and protect them.