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S.E.C.U.R.E. Act is Finalized After the Senate Approves Bill

The House of Representatives overwhelmingly passed the S.E.C.U.R.E. Act of 2019 (Setting Every Community Up for Retirement Enhancement), 417-3 votes back in May of 2019. The Act has now been passed by the Senate and is expected to be signed by President Trump. It is important to note the contents as they have a potentially substantial impact on both Roth and Traditional IRA benefactors. There are several facts about this bill which will effectively eliminate some of the tax advantages currently in place. Below are the changes which will impact tax savings:

  • RMD Age would be raised to 72 from 70.5
  • 10-year provision would require most non-spouse Roth and Traditional IRA beneficiaries to liquidate the inherited account(s) within 10 years of their benefactor’s death (currently the Roth and Traditional IRA can be distributed over the lifetime of the beneficiary)

The impact from the 10-year provision is substantial as the beneficiary will lose both the ability for longer growth during the beneficiary lifetime and be subject to higher tax rates since the liquidation of the entire balance of the inherited Roth and Traditional IRA is required over what would be presumed to be a shorter period of time (10 years versus lifetime). So a 20 year old inheritor would need to liquidate the inherited Roth and Traditional IRA by age 30 versus their life expectancy which could be as much as a 30-60 year longer span.
Some exemptions from this 10-year provision are listed below, if the Roth and Traditional IRA beneficiary is:

  • Spouse of the deceased account owner
  • Minor child of the deceased account owner
  • Less than 10 years younger than the deceased account owner
  • Disabled or is a chronically-ill individual

There are additional components to the Act, some positive and others not, which include:

  • Elimination of the provision which would allow tax-free Section 529 college savings account withdrawals to cover homeschooling costs
  • Credit card access to 401(k) loans would be prohibited
  • No Age Restrictions on Deductible IRA Contributions
  • More 401(k) participation opportunities for part-time employees
  • Penalty-free withdrawals for the birth/adoption of a child up to $5,000
  • Annuity information and options have been expanded
  • Auto-enrollment 401(k) plans have been enhanced, increasing from a 10% safe harbor to 15%
  • Help for small businesses offering 401(k) plans
  • Additional saving opportunities for grad students and care providers

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