The SECURE Act & How It Affects Retirement SavingsSubmitted by Insignia Financial Company on January 29th, 2020
The SECURE Act & How It Affects Retirement Savings
By Matthew Lenhardt, Financial Planner
The Setting Every Community Up for Retirement Enhancement (SECURE) Act is being described by many as the most important change to retirement legislation in decades. It is important to understand how you might be affected by this change in retirement legislature. This article will touch on some of the major changes that people should expect if the SECURE Act is signed into law.
Removal of Stretch Provisions on Inherited IRA's
Currently, non-spouse IRA beneficiaries are allowed to continue taking or “stretching” their inherited IRA required distributions throughout their lifetime. This is a powerful estate planning method that many IRA owners have utilized to transfer wealth to their beneficiaries. Under the SECURE Act, beneficiaries would be required to distribute all of the assets out of their inherited IRA within ten years. This will cause beneficiaries to have to take larger distributions as income, which could put them in a higher tax bracket. This could greatly affect the estate planning many families have done.
Repeal Maximum Age for Traditional IRA Contributions
The SECURE Act will remove the rule that does not allow traditional IRA contributions after the age of 70½. As Americans live longer, many will continue working after age 70½.
Extend the Start Date for Required Distributions
Under the SECURE Act, participants will be able to delay their required minimum distributions until they are 72 years old, extended from age 70½ under current legislation.
401(k) Lifetime Income Provisions
The SECURE Act would give fiduciary safe harbor to employers when they choose a group annuity issuer to support lifetime income options for participants in their 401(k) plan. Plan sponsors have been hesitant to offer annuities as investment options in their retirement savings because of their fiduciary liability. By providing a safe harbor for plan sponsors, this legislation is opening the door for annuity products to be added to the investment options participants have access to. Participants should be diligent when evaluating their options because of the complexity of annuity contracts. These contracts are difficult to understand and often include high fees. Participants should consult a financial professional to fully understand their investments.