Getting Acquainted with The S.E.C.U.R.E Act – Part I

On Dec. 20, President Trump signed into law the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE). This Act was added as Division O to the Further Consolidated Appropriations Act, 2020 (H.R. 1865).  With any luck, my retirement job is going to be advising Congress on clever acronyms for hopeful legislation.  The act has 30 different provisions, but let’s start with some of the more widely applicable changes:

  • Change in Required Minimum Distribution (RMD) age from 70 ½ to age 72.  I can’t prove it, but think Congress read my post Halloween Head Scratcher where I poke fun at the randomness of age 70 ½.  Anyhow, there are exceptions to this new rule, like in the past, but as a whole the age which you are REQUIRED by the government to distribute money from your IRA is pushed back to April 1 of the year after you turn 72.  If you just turned 70 ½, you are out of luck! You are still expected to continue your RMDs as previously planned.
  • Elimination of the “Stretch IRA” for most (not all) non-spouse beneficiaries.  In my opinion, this is one of the more notable changes for its impact on generational wealth transfer.  In the past, for example, a daughter who inherited her mother’s $500,000 pre-tax traditional IRA could “stretch” her required distributions from that IRA over her lifetime.  This “stretch” allows the daughter to only pay tax on the little amount required to be withdrawn each year.  Moving forward, the daughter will have only 10 years to empty the IRA vs. her entire lifetime.
  • Traditional IRA contributions allowed after age 70 ½. Previously, even if you had earned income and were older than 70 ½, you could not contribute at all, let alone the maximum allowable amount ($7,000 if over 50).  Now you can! I will be interested to see what other changes emerge in the coming years as a result of this small pivot.  As more and more retirees are working, either out of necessity or desire, this could prove useful for deferring some taxable income.

I am excited, as geeky as that sounds, for all the planning opportunities that will arise from this legislation.  It also serves as a great reminder, since legislation like this usually only comes about once every 10 years if not longer.  It is easy to design a plan around today’s law as if it were written in stone, ignoring the long term potential for change.  Sound planning comes from leaving enough space in your approach so when the mostly forgotten bill (like this one) passes one week before Christmas, you have the flexibility to pivot and keep marching towards your goals without missing any steps.

In our next post, we will review changes to the medical expense deduction, using 529’s for not just tuition, but student loan repayment as well as several other pertinent changes. Stay tuned!

Happy Friday!