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How to “SECURE” Your Retirement Savings

Earlier this summer, the House of Representatives nearly unanimously passed the Setting Every Community Up for Retirement Enhancement Act, aka the “SECURE Act.” This legislation proposes some of the biggest changes to retirement savings plan legislation since the 2006 Pension Protection Act. After passing the House with a 417-3 vote, proponents were hoping the SECURE Act would pass the Senate by unanimous consent. The Senate, however, failed to address the SECURE Act before Congress’ August recess. 

The Senate was, however, considering its own retirement reform legislation through two similar plans: The Retirement Enhancement and Savings Act of 2019, “RESA,” introduced in April and the “Retirement Security and Savings Act” introduced in May. 

Why is this important information? Because some form of retirement savings “reform legislation” is likely to pass and it will affect your retirement strategy—the real question is to what extent. Some of the key changes under consideration include the following points and you should keep these on your radar so you are ready to adjust your strategy in accordance with your priorities.

RMD’s Starting at Age 72: This may seem like a minor change, but bumping the age for taking Required Minimum Distributions from 70½ to 72 could significantly boost the value of retirement savings for many people. Allowing additional time for your money to accrue is always favorable.

Eliminating Age Restrictions for Contributions: If you continue to work beyond age 70½, you could continue contributing to your traditional IRA. Like the idea of extending the age for taking RMD’s, this change allows you to keep putting money into your retirement savings as long as you are working, which is definitely favorable. 

Part-time Employees Get 401K Access: With several caveats, part-timers who work at least 500 hours a year would be eligible to participate in their employer’s 401K. This definitely opens retirement opportunities in a favorable way.

The Down Side: A significant drawback of the SECURE Act (and the Senate alternatives) is its elimination of “stretch” distributions for inherited assets. Instead of being able to take money out of an inherited IRA over one’s lifetime, the SECURE Act would require distributions to be completed within 10 years. For non-spousal beneficiaries, this will significantly reduce the long-term growth opportunities of receiving an inheritance and has significant income tax implications. By some calculations, a 45-year-old inheriting a $1M traditional IRA would have $0 remaining at age 86, compared to the opportunity of having $2M at age 86 if allowed to stretch the distributions. 

The Up Side: This new distribution rule would give you the opportunity to easily analyze the benefit of using a trust as the beneficiary of your traditional IRA. A trust beneficiary allows for asset protection and may become the best tool for meeting your goals in leaving retirement assets to your loved ones. 

Whichever new set of rules is enacted, we will be ready to help you understand your options and devise a plan that satisfies your goals and desires. Call us today for a free consultation to discuss your estate planning options.