It sounds like a homeland security or immigration bill, but the SECURE Act is designed to get Americans saving more for their retirements. Using the government and tax law to encourage people to squirrel away more in their working years has been a bipartisan issue for decades. The Setting Every Community Up for Retirement Enhancement Act of 2019, which passed the House 417-3 in May, has sweeping provisions to increase access to individual retirement accounts (IRAs) and 401k plans and to prevent older Americans from outliving their nest eggs.
Of interest to mature Americans is the ability to further delay taking the dreaded required minimum distributions (RMDs). Current law requires those with traditional IRAs and 401k plans to begin taking distributions in the year in which recipients turn 70 ½. That would change to age 72 under this bill, a sign that Congress recognizes increasing longevity. “Pushing back RMDs will help people make their money last just a little bit longer, especially since more of them need to work later,” says David Rae, a financial planner in Los Angeles. The bill repeals the prohibition on making contributions to a traditional IRA after 70 ½ as well.
Other provisions seek to help small businesses offer retirement plans, to expand 401k plans for part-time employees, and to expand auto enrollment into company plans for all. By making saving in a company plan the default, more people will automatically be saving, though employees could pay a visit to their human resources department at any time to opt-out.
Still other provisions are of a more technical nature, such as expanding annuity information and options, offering penalty free withdrawals for the birth or adoption of a child, and allowing graduate students and foster-care providers an ability to begin saving for retirement.
But there is one provision that has stirred much controversy and drawn the consternation of financial planners across the board. The SECURE Act would eliminate the current rules that allow beneficiaries of non-spouse IRAs to “stretch” RMDs from an inherited account over their own lifetime (and thus allow the funds to grow tax-free for decades). Instead, all funds from an inherited IRA or 401k plan would have to be distributed to non-spouse beneficiaries within 10 years of the IRA owner’s death. This provision is expected to garner more scrutiny in the Senate this fall.
James Lange, a CPA, attorney, and president of Lange Financial Group called the entire SECURE Act a “hidden money grab” in a June article that appeared on Forbes. He noted a better title for the bill would be “The Extreme Death-Tax for IRA and Retirement Plan Owners Act” and stated that the Act “is wrapped with all kinds of goodies that are unfortunately of limited benefit to most established IRA and retirement plan owners.”
But it is important to state that Lange’s view appears to be a minority one, as experts generally have high praise for a bill designed to give over 50 million Americans with no retirement plan a path to building wealth. The goal of the SECURE Act nicely complements another of AMAC’s priorities, our Social Security PLUS initiative. It also seeks to allow younger workers an opportunity to save in tax advantaged accounts as a hedge against possible lower Social Security benefits in the future.
AMAC will continue to follow the SECURE Act as it winds its way through the Senate and will report changes to our membership as they become known.
Jeff Szymanski works in Political Communications for The Association of Mature American Citizens (AMAC), a senior benefits organization with over 2 million members.