Congress passed and signed the SECURE Act to close out 2019. This bill is meant to overhaul certain retirement rules and help the overall landscape for retirees. Was it a success? Only time will tell. Here are what we believe to be the good, the bad, and the ugly of the SECURE Act.
Increasing the Required Minimum distribution (RMD) age
Starting in 2020, individuals must begin taking distributions from qualified accounts when the reach age 72. Before the passing of the SECURE act, the RMD age was 70.5. This provision is meant to address the increase in life expectancy and should have been passed years ago.
Removal of the 70.5 contribution age limit
The SECURE Act lifts the age limit on traditional IRA contributions. Which means you can continue contributing to an IRA pas the age of 70.5 as long as you are working and have income. This should help people that need to work a few extra years to increase their savings.
Long-Term, Part-time workers will be able to join their company’s 401(k) plan
- Up until now, if you worked less than 1,000 hours per year, you were generally ineligible to participate in your company’s 401(k) plan.
- Except in the case of collectively bargained plans, the law now requires employers maintaining a 401(k) plan to offer one to any employee who worked more than 1,000 hours in one year or 500 hours over 3 consecutive years.
Elimination of the Stretch IRA
In the past, when a non-spouse inherited an IRA, they were required to take distributions based off their own life expectancy. This was advantageous because they were able to “stretch” out the tax deferral over their life expectancy. Now, non-spouse inherited IRA’s will be required to withdraw the funds within 10 years. This increases the importance of good estate planning and naming beneficiaries.
Opening 401(k) plans to annuity companies
This is a provision we believe could turn into a disaster. The SECURE Act opens 401(K) plans to insurance companies in order to offer annuity contracts as an investment option. These annuity contracts will be marketed as “Lifetime guaranteed Income Funds”. If you don’t know how we feel about annuities you can read about them here.
Annuity contracts can be expensive and will limit your flexibility in retirement. What’s even more troubling is there is no requirement for plan fiduciaries to select the least expensive options. It is no surprise that insurance companies were some of the biggest lobbyists behind this bill.
If you have questions about the SECURE Act or are just curious how it might affect your situation, feel free to give us a call at 610-825-3540.