With the clock winding down on 2019, we were bombarded with a number of serious economic and political issues. The impeachment of President Donald J. Trump was making headlines. The trade war between the U.S. and China was heating up and the threat of increasing tariffs was looming. More importantly, there was danger of another dreaded government shut-down. While these issues took center stage in the media, Congress passed a $1.4 trillion year-end spending bill to keep the government running and President Trump signed it into law; averting another costly government shut-down. Strategically tucked away deep inside this mammoth piece of legislation was the Setting Every Community Up for Retirement Enhancement (SECURE) Act, which includes significant changes to retirement accounts and easily became our “Top IRA Ruling” of 2019.

What is the Secure Act?

The Setting Every Community Up for Retirement Enhancement (SECURE) Act is a bipartisan package of laws designed to grow and enhance access to retirement savings options for American savers, including more access to workplace savings plans. Certain SECURE Act provisions were also advanced in reaction to Americans living longer and working longer. Among them being changes to Required Minimum Distribution (RMD) laws and broader access to lifetime income and annuity options. The SECURE Act impacts many retirement plans in place today, such as individual retirement accounts (IRAs) and 401(k)s. Most of the provisions in the SECURE Act took effect January 1, 2020.

What are some of the key provisions to the SECURE Act?

The SECURE Act makes a number of new policy changes impacting small business access, retirement plans, (RMD) rules for individuals, and modifications of beneficiary distribution options such as “Stretch IRAs.” Some of these provisions are outlined below:

• Enhanced access to workplace retirement plans.
Provisions in the SECURE Act remove existing barriers to allow small business employers to come together and create pooled employer plans or “multiple employer plans.” This may allow for more savings options for employees of small business employers, providing cost sharing options and other small business incentives to offer retirement plans. In addition, the SECURE Act provides a
startup credit for small businesses to offer new retirement plans, including a tax credit of up to $5,000 to help cover costs.

• New Exception to the 10% Penalty for Birth or Adoption.
Under the SECURE Act, upon the birth or adoption of a child, a plan participant or IRA Owner may take a “qualified birth or adoption distribution” of up to $5,000 from their retirement plan or IRA.

• Age Limit Eliminated for Traditional IRA Contributions.
Beginning in 2020, the SECURE Act eliminates the age limit for Traditional IRA contributions. Previously, contributions to a Traditional IRA, had to stop when the person reached age 70 ½.

• New triggering date for required minimum distributions (RMDs).
Prior to the SECURE Act, IRA owners and plan participants were required to take RMDs from their retirement accounts beginning at age 70 ½. Under the new provisions of the SECURE Act, the age when an individual must take RMDs from a plan or IRA increased from age 70 ½ to age 72.

• Elimination of “Stretch” IRAs.
Prior to the SECURE Act, post-death RMD rules permitted a designated beneficiary to draw down remaining inherited benefits of an IRA over the beneficiary’s life expectancy, potentially reducing the tax liability to the beneficiary. Beginning January 1, 2020, however, the SECURE Act provides that a non-spouse beneficiary must draw down his or her entire inherited interest within 10 years. There are exceptions to the 10-year rule for spouses, minor children, chronically ill or disabled beneficiaries, as well as beneficiaries 10 years or younger than the account owner (often a significant other or sibling).
This rule changes how we plan for the wealth transfer of retirement accounts to beneficiaries. For clients looking to protect their beneficiaries from receiving outright distributions of retirement assets, utilizing a retirement trust may be an ideal solution. Why would a client want to protect the assets? Maybe the beneficiary is a minor, a spendthrift, works in a litigious profession (doctor, lawyer, engineer, real estate, etc.) or a myIARd of other reasons.

Who Really Benefited from the passing of the SECURE Act?

The SECURE Act is wrapped with all types of changes that are of limited benefit to most established IRA and retirement plan owners. A more appropIARte name for the bill would have been the Extreme Death-Tax for IRA and Retirement Plan Owners Act, because it gives the IRS carte blanche to confiscate up to one third of your IRA and retirement plans. It has been called “The Hidden Money Grab.” Some members of the financial community were strongly opposed to eliminating the “Stretch” IRA and replacing it with a 10-year liquidation. This bi-partisan legislation was strategically rammed through the Senate because the government had a problem with non-spousal beneficiaries continuing to defer income taxes for their lifetime and then passing said deferral down from generation to generation. The US Treasury wants their money sooner.

If you have questions about your specific situation or you want to learn more, give us a call at (614) 468-1660 for a complimentary consultation.

Darren, a Columbus, Ohio native has earned degrees in Business, Accounting, and an MBA. He has over twenty-five (25) years’ experience in financial services. The Ohio Company, First Union Securities, and Merrill Lynch were instrumental in his career prior to starting his own Wealth Management Firm, Wealth Conscious LLC, (614) 468-1660, www.wealth-conscious.com. He holds his Series 65 and Life and Health licenses. Investment advisory services are offered through Foundations Advisors, LLC an SEC Investment Advisor Representative.