3 Things to Know About the SECURE Act & Your Retirement

1 Jan 2020

3 Things to Know About the SECURE Act & Your Retirement

The SECURE (Setting Up Every Community for Retirement Enhancement) Act has been lauded as groundbreaking legislation that will dramatically improve Americans' options when it comes to accessing the tax advantages that come with IRAs and 401(k)s. That is not necessarily an accurate depiction. Here are three things self-directed investors must know about this act, which President Trump signed into law just before Christmas last year.

1. It raised the age limit on required minimum distributions (RMDs).

RMDs are the mandatory withdrawals that investors with IRAs must make starting in their 70s. Prior to the SECURE Act, that age limit was 70½. Now, the benchmark is 18 months later, at age 72.

2. The act permits contributions to tax-deductible IRAs after age 70½.

Investors may now contribute to their IRAs after age 70½, which may have positive tax advantages for investors who are still generating income in their 70s. There are caveats about investors who were over 70½ in 2019, so talk to your financial advisor to avoid stiff penalties.

3. It Limits "Stretch" Provisions to 10 Years.

If you incorporated the "stretch" provisions associated with IRAs and 401(k)s in your estate planning, then you need to talk with your trusted advisors immediately. In the past, the beneficiaries of your self-directed account could stretch out the associated tax benefits for a lifetime. Now, those advantages are limited to a decade. You must immediately review your beneficiary designations to see how this will affect surviving members of your family. This is particularly important if you named a trust as the beneficiary of your account because some of the structures and strategies that previously would have protected heirs from creditors and tax burdens may now prevent them from meeting the 10-year distribution requirements instead.

This "Feel-Good" Legislation May Leave You Feeling Frustrated

On the surface, the SECURE Act seems like a great piece of policy to most people because of the obvious increase in flexibility that it offers to many account holders. Self-directed investors have been leveraging the flexibility and power that come with self-directed retirement accounts for years, however, and you may actually find that the SECURE Act creates new restrictions on your investing. Whether the overall results of this legislation are positive or negative for you, it is imperative you consult with an expert self-directed account attorney to find out what changes you will need to make in 2020 as a result of this new law.

Observations from the Experts

"The SECURE Act is a nice thing...but my sense is the changes in the act are really quite modest." – Alicia Munnell, director of the Center for Retirement Research at Boston College to MarketWatch.com

"The SECURE Act is not that dramatic [because] it is much more focused on higher-income households." – Kent Smetters, professor of business economics and public policy at Pennsylvania University's Wharton School to MarketPlace.org

"The insurance companies lobbies Congress to allow annuities to be used inside these plans. A tremendous amount of money out there...just got opened up to insurance companies and their expensive, crappy products." – Steven Podnos, certified financial planner (FL) t MarketPlace.org

"The average person inheriting an IRA will likely pay a little more taxes than they otherwise would have." – Ameriprise financial advisor Brett Clark to WDTV

"It's too bad for self-directed investors, who are not 'the average person' when it comes to retirement investing. It seems like Congress decided it was okay for the heirs of this action- and future-oriented population to pay for this policy." – Bryan Ellis, founder of SDI Society and president of KLT Group to SDI Magazine

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