SECURE Act could affect your retirement

If the SECURE Act is passed by Congress, almost everyone will have to review their retirement plans.

(Note: the SECURE Act was signed into law on Dec. 20, 2019, two days after this article was published. The new regulations will take effect on Jan. 1, 2020. Contact your local Sales Representative if you have questions about how this will affect your retirement plan.)

I recently had the opportunity to work with a couple that attended one of our Catholic Estate Planning Basics workshops we conducted this past fall. After gathering their information and discussing their main goals, issues, and concerns, we met to do a comprehensive estate and retirement plan analysis. They had not started an estate plan so we had a good discussion on the options available. This allowed them to make good decisions and start the process moving forward.

Regarding their retirement plans, the couple had done quite well. They had multiple IRAs, 401(k)s and other investments that we recommended they consolidate for ease and simplification as they moved into retirement. We also had a discussion on the new SECURE Act under consideration by Congress in 2019 that could have an impact on everyone’s retirement plans going forward.

The federal SECURE Act stands for Setting Every Community Up for Retirement Enhancement. It was passed by the House of Representatives in May 2019 and was scheduled for a vote by the Senate before the end of 2019.

Below are three of the proposed changes that may affect many people planning for retirement, as well as those already retired.

First, people will be allowed to contribute to traditional IRAs past age 70½.

Current law prohibits people from contributing to a traditional IRA after they’ve reached age 70½ even if they were still working. 

If the Act passes, people will be able to contribute to a traditional IRA so long as they are working and have income. This is similar to the 401(k) and Roth IRA rules regarding contribution ages. The proposed change comes as life expectancies are increasing and people are working longer to fund longer retirements.

Second, the age requirement for Required Minimum Distributions (RMDs) from IRAs will be pushed back.

Under current law, retirees must make taxable required distributions from their IRAs starting at age 70½ and do so each year until death. The amount of required distribution is determined by age, end of year account balances, and IRS divisor factors.

…being able to contribute longer to an IRA may prove valuable for those that need a little more time to reach their goals, provided they are still working….

If the Act passes, the age of required distribution will be pushed back from age 70½ to age 72. The proposed rule would only apply to people who have not yet reached age 70½ by the end of 2019. That means if you are currently making RMDs, your situation would not change. 

Third, the “stretch” IRA option will be eliminated for IRA beneficiaries.

Under current law, a beneficiary of an IRA can “stretch” the distribution of their inherited IRA over their life expectancy, thus lengthening the payout and spreading the tax obligation over a longer period of time.

If the Act passes, it would eliminate the “stretch” IRA option and only allow the beneficiaries to draw down the account no longer than 10 years from the date of death of the original IRA holder.

As you can see, if the SECURE Act passes it will require many folks to take another look at their retirement plan. Being able to contribute longer to an IRA may prove valuable for those that need a little more time to reach their goals, provided they are still working. It makes sense for everyone who has an IRA, or is considering one, to review their options.

Also, the increase from age 70½ to 72 for required minimum distributions may ease tax burdens and allow for more charitable giving options. The elimination of the stretch IRA will also force some to review their beneficiary designations and possibly look at more tax-advantaged tools to pass assets to their heirs.

Please don’t hesitate to contact your local Catholic United Financial Sales Representative to discuss a review of your current plans. It is always a prudent idea to reassess your plans and consider those changes that we have no control over, like new laws that greatly affect the future.

Also, Catholic United offers both traditional and Roth IRAs (Individual Retirement Annuities) which can be excellent additions to retirement savings plans. Let your local Sales Rep know of you interest. 

Catholic United Financial and John Tetzloff are not permitted to give tax or legal advice. The information given is based on our understanding and interpretation of laws and regulations currently in effect. You may wish to consult your personal tax or legal advisor with questions about your specific situation.