Will the “SECURE” Act Help Secure Your Retirement?

September 17th, 2019 by Jim Allen

The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 is currently awaiting approval in Congress and may very well be signed into law this year. It has bi-partisan support from both Republicans and Democrats, but could be derailed if added to another bill that doesn’t have the same level of support. But, if the SECURE Act becomes law, there are some beneficial provisions that could help both retirees and pre-retirees.

Delayed required minimum distribution age: The current age when distributions from most retirement plans are required to be started is 70 ½. This legislation would change the start date to age 72, allowing funds to continue growing tax deferred for a little longer.

Contributions to IRAs would be allowed after age 70 ½: Currently, once you hit age 70 ½ you cannot contribute to an IRA even if you are still working. The new law would allow you to continue to contribute to your IRA for as long as you are working regardless of age.

• Retirement plan loans through credit cards will be eliminated: Many employer retirement plans allow employees to take loans from the plan (subject to certain limits and restrictions). While taking a plan loan is not always the best idea, it does make sense in some cases. But, some plans are currently providing loans via the use of a credit card which is causing plan participants to spend their retirement funds on small purchases. This provision would eliminate the availability of plan loan credit cards.

Increased access to 401(k) plans for long term part time employees: Under current law, employees must work more than 1,000 hours to be eligible for plan participation. This new rule would allow employees who work more than 500 hours for 3 consecutive 12 month periods to be eligible to participate. Given that the trend has been for fewer full time and more part time workers, this will have a favorable impact for employees trying to save for retirement.

Using 529 plans to pay toward student loans: While not related to retirement, this provision would allow up to $10,000 from education savings accounts (529 plans) to be used for student loan debt repayment and would qualify as a qualified higher education expense. Under current law, qualified higher education expenses only applied to books, tuition, fees etc. This law change will allow people with student loan debt to be able to pull up to $10,000 tax free to pay down student loans.

• Changes to “inherited IRA” required minimum distributions: This particular proposal is intended to be a revenue raiser to help offset the tax benefits of the other proposals in the bill. If someone inherits an IRA or retirement plan today, they can take out the remaining funds over their life expectancy. This can provide for distributions to be “stretched out” over several years or decades while allowing the rest of the money to continue growing tax deferred. Under the proposed new rule, most people will have to take out the inherited IRA funds over no more than 10 years. This will accelerate the liquidation of the inherited retirement account which will also accelerate taxation.

When compared to other recent tax bills (such as the tax act of 2017), the SECURE Act doesn’t have any provisions that will have a huge impact. However, other than the acceleration of inherited IRA distributions, the provisions of the SECURE will help people better save for retirement in a variety of small ways. There is a little bit of benefit for everyone as the legislation is currently drafted.

We will keep you apprised of the progress of the SECURE Act as well as anything else of importance that may affect your retirement planning needs. At Anchor Bay Capital, we specialize in helping pre-retirees and retirees make the most of their retirement savings.
Please contact us for a complementary retirement income review.