After months of delay, the Setting Every Community Up for Retirement Enhancement (SECURE) Act was signed by President Trump on Friday, December 20, 2019. The Act, which was attached to a bipartisan fiscal year 2020 appropriations bill, will go into effect on January 1, 2020.
The SECURE Act is widely viewed as the most sweeping retirement security legislation to pass Congress in years, and is designed to modernize America’s retirement system. The Act has continually had bipartisan support in Congress as well as throughout the retirement services industry.
The Act’s most important provision will be the elimination of the stretch IRA strategy. Currently, beneficiaries of employer retirement plans and IRAs, including Roth IRAs, can stretch the required minimum distributions from these plans over their remaining life expectancy. The SECURE Act would eliminate this benefit for many beneficiaries by requiring them to have to withdraw the entire account by the end of the tenth year after the account owner passes away. While the Act does include exceptions to this new rule, depending on the type of beneficiary, there will undoubtedly be many beneficiaries of retirement plans subject to these new guidelines.
The Act will also include tax-friendly updates for individuals saving for, and already in, retirement:
The maximum age restriction for contributions to an IRA will be repealed. Therefore, individuals who still have employment income will now be able to contribute to their IRA past age 70 ½. Additionally, the beginning age for required minimum distributions will increase from age 70 ½ to age 72.
Some additional updates to employer retirement plans, such as a 401(k), will be included in the SECURE Act. The Act will make it easier for annuities to be included as an investment option in these types of retirement plans. The Act will also increase incentives for small businesses to introduce new retirement plans to their employees and allow them to offer inclusion into the retirement plan for a broader range of employees, including part-time workers.