Changes to Retirement Savings After
the SECURE Act of 2019
On December 20, 2019, President Trump signed the Setting Every Community Up for Retirement Enhancement Act (the “SECURE Act”). The underlying premise of the SECURE Act was to enhance individual retirement savings. It also professes to simplify the administration of our retirement system. Some of the basic features of the new law include:
•Increasing the beginning age for mandatory withdrawals from a qualified retirement plan from 70½ to 72;
•Repealing the maximum age for contributions to a traditional IRA;
•Limiting the “stretch” IRA to 10 years;
•Allowing individual small businesses to group together in establishing retirement plans which will benefit employees of the separate companies;
•Changing the requirements for part-time employees to be eligible to participate in an employer’s plan;
•Permitting employers to automatically enroll employees in the company’s retirement plan (substituting an “opt-out” system for the current system which requires an employee to take affirmative action to join his employer’s plan);
•Allowing penalty-free distributions from qualified retirement plans for births and adoptions.
According to the Insured Retirement Institute, the SECURE Act addresses “a deepening crisis where too few Americans are saving sufficiently to ensure an adequate income for their retirement years.” The Act resulted from a widespread belief that these reforms will increase individual
to retirement plans in the workplace, and thus expand retirement savings of all Americans.
From an estate planning perspective, one of the most important features of the Act is the limitation of the “stretch” IRA. The term “stretch IRA” refers to an inherited retirement account being able to be drawn down over the life expectancy of the beneficiary. Both the old and new rules do not apply to a qualified retirement account having a spouse as beneficiary. When the spouse is beneficiary, the spouse can make an election to treat the IRA as his or her own, and even commingle it with an existing IRA of the spouse, through what’s called a “spousal rollover.” However, when a child or other individual is named as beneficiary, the account is treated as an “inherited IRA” and very different rules apply regarding distribution and taxation. This is where the SECURE Act made significant changes.
To learn more about the SECURE Act and how it may affect your estate planning, check out the full article