S.E.C.U.R.E. Act Passes House Vote but eliminates several key tax advantages
The House of Representatives overwhelmingly passed the S.E.C.U.R.E. Act of 2019 (Setting Every Community Up for Retirement), 417-3 votes. The Act still needs to pass a vote in the Senate, however it is important to note the contents because, if passed, would have a potentially substantial impact on Roth and Traditional IRA benefactors. There are several facts about this bill which would 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 IRA Contributions
- 401(k) for Part-time employees
- Penalty-free withdrawals for the birth/adoption of a child
- Annuity information and options would be expanded
- Auto-enrollment 401(k) plans would be enhanced
- Help for small businesses offering 401(k) plans
- Additional saving opportunities for grad students and care providers
As the Act has not passed the Senate vote yet, it is premature to predict the actual impact it will have. This information is meant to provide an advance look at the potential impact the Act may have if and when it passes the Senate vote.
We will continue to update you as the Act progresses.