By Kurt Arseneau
In May, the U.S. House of Representatives passed a retirement savings bill. The Setting Every Community Up for Retirement Enhancement, or the SECURE Act of 2019. The SECURE Act, on paper, looks very good at first glance, but the devil is in the details.
There are many key provisions that have been adopted in this new bill to help boost American’s retirement savings. Some of those key provisions are:
- Small Business 401ks – You would be able to have multiple small businesses band together to group their plans for their employees.
- Annuity Adoptions – This would allow employer-sponsored 401k plans to add annuities as investment options on the menu.
- 529 plans – 529 plans would be extended to pay for expenses related to apprenticeship or to pay back as much as $10,000 in student loans.
- Grant part-time workers benefits – Long-term part-time employees would be able to participate in their company’s 401k plans.
- More time in IRAs and 401ks – The bill pushes back the age for required minimum distributions (RMDs) from 70 ½ to 72 years old
On the surface, the above provisions, seem like a good thing. However, the devil is always in the details. The age limit being moved to 72 from 70 ½ on RMDs is a good idea, except that we are in $22 trillion of national debt. You don’t really think Congress would want to go without this tax revenue, do you? They need to make up for this loss of revenue in some form. Here is the money grab and a bigger risk to your nest egg then Market Volatility, Tax Risk Volatility: to make up for the lost tax revenue, the House bill would require Americans who inherit an IRA to withdraw the money within 10 years of the accounts owner’s death, along with paying any taxes due. What’s important here is that the surviving spouses and minor children would be excluded. They have essentially created higher costs for your children and grandchildren.
This would be the death of the estate planning strategy known as the “stretch IRA.” Under current law, heirs spend down the inherited IRA over their lifetime, reducing the tax hit all at once.
There is a Senate version to this same bill known as RESA. This version is a little less punitive and may call for a 5-year payout for inherited IRAs over $400k per heir. I am sure we will see a few more iterations of the bill from both the House and the Senate, but all signs point to change on the stretch IRA component. Details need to be hashed out between the two bodies, but they both agree for changes to inherited IRAs after December 31, 2019.
In closing, your favorite Uncle Sam will get his revenue in some way or another. The big question is what will you do to keep from losing your long hard nest egg from the Tax Risk Volatility? Call us today to find out how we are planning for these changes and continue to create an environment for our clients to win by purpose driven planning. Till next time, be well!
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