Secure Act

The Secure Act has several provisions in it that will affect most people at one point or another. Once the President signs it, then the Secure Act will go into effect with several of these provisions summarized for easy interpretation.

The required minimum distribution age will be raised from 70 ½ to 72. In addition, there are new minimum distribution tables being prepared that will factor into this change. Right now, if you have an IRA, you can choose to re-calculate your RMD each year and pull out that amount. This is based on an IRS Table and this will be changing to allow people a slight benefit meaning that they will be able to pull less out of their IRA’s and let more of their IRA’s continue to grow. 

A negative impact of the Secure Act is related to Inherited IRA’s for non-spouse beneficiaries. In the past, if you inherited your parent’s IRA account for example, then you could roll it over to an Inherited IRA account and pull out RMD’s based on your age theoretically “stretching” it out over your lifetime. This is why they called it a “Stretch IRA.” Now, with the Secure Act, you are going to have to pull it all out within ten (10) years. I believe that this is going to be effective for Inherited IRA’s after January 1, 2020 and the IRS has to issue guidance in the first quarter of next year. I also believe that there will no longer be any RMD’s required from these Inherited IRA’s. You will just have to pull it all out within 10 years.

There will be penalty free withdrawals for expenses related to the birth or adoption of a child form retirement plans.
 
In regard to 529 plans, they will now be able to be used to pay student loan payments.
 
Small businesses will be able to join forces with other small businesses to establish retirement plans. For example, several small dry cleaners could band together and establish a multiple employer retirement plan thereby becoming eligible for lower costs to administer it and better investment choices. Administrative expenses would be shared among the dry cleaners in this example. Not sure how this will work in real life as competitors may not want to work together, but it could be any small businesses who band together like a dry cleaners shop, an auto repair shop and a small survey company.
 
Lifetime income annuities will be allowed in pension plans. This is the insurance lobby at work and totally unnecessary in my opinion. Lifetime income annuities pay a guaranteed income for as long as you live and once you die, then there is no balance left for heirs. Unless of course, you choose a lower payout for yourself with a beneficiary option. (This means lose cash flow in retirement.) The returns on these income annuities are typically very, very low and any good portfolio manager worth their salt can do better with just systematically paying cash flow from principal. With an annuity, you are giving your money to the insurance company, not your heirs. Beneficiary options will be structured so that your most money paid out to you is while you are living and a poor payout if you want a beneficiary.  Further, there is even a provision that favors insurance companies. Basically, if a retirement plan does not offer lifetime annuities, then you can do an IRA rollover of your 401(k) and purchase the annuity in your IRA rollover account. Again, this favors insurance companies, not you. I would be adamantly against these lifetime income annuities inside of retirement plans and IRA accounts, personally. They simply are not needed.

Unearned income for children in the past was taxed at very high trust and estate rates. Now, this will be changed to the tax bracket of the parents. Unless, there are no parents, then they would still be taxed at the trust and estate tax rates.
 
Next year, retirement plans can be started (adopted) as late as the tax filing deadline. In the past, they had to be established by December 31^st. This will be a benefit to businesses.
 
There is a three-year tax credit for start-up retirement plans for small employers who include automatic enrollment for their employees in their plans. Also, the maximum percentage for automatically enrolling participates will be raised from 10% to 15%. The employer chooses the figure from 1% to 15%.

You will now be able to contribute to an IRA after 70 ½ if you have earned income. In the past, you could not contribute past age 70 ½ if you had earned income.
 
Those are the highlights of the Secure Act. Of course, there are other provisions too numerous to mention, but most do not apply to regular people.