How the SECURE Act Changes the Retirement LandscapeSubmitted by Reby Advisors | Certified Financial Planners | Danbury, CT on June 20th, 2019
By Doug Kuring, CFP®, June 20, 2019
On May 23, 2019, the U.S. House of Representatives passed the “Setting Every Community Up for Retirement Enhancement” (SECURE) Act, which introduces a myriad of significant changes for retired individuals, people still working toward retirement, and for small businesses across the United States. The bill is expected to be signed into law by the end of 2019.
The SECURE Act has three primary objectives:
- Encourage American workers to save more for retirement by increasing access to a broader range of financial products within their employer sponsored retirement plans, including annuities that deliver guaranteed retirement income.
- Provide employees with estimated monthly retirement income figures on their statements to encourage savings.
- Encourage more small businesses to establish workplace retirement plans for their employees to save for retirement.
Impact of the SECURE Act on Employers
Employers will have greater capability of offering Fixed Index Annuities within their 401(k) plans, receive an increased tax credit for setting up new 401(k) plans and be able to band together with other small employers to create “multiple-employer” sponsored retirement plans. By pooling plan costs, employers without a retirement plan for their employees would be enticed to do so at lower administrative and legal costs.
How the SECURE Act Impacts Employees
Guaranteed pensions have become extremely rare over the past few decades, prompting calls for the annuity options to be added to 401(k) plans so that workers can create their own guaranteed pension paycheck. Employers resisted due to liability concerns, but now the SECURE Act creates a set of guidelines that would give companies safe harbor to offer lifetime income annuities.
In addition, employees will start receiving monthly lifetime income disclosure statements with an estimate of the monthly income they can expect from their 401(k) savings when retired. Additionally, the eligibility threshold for part-time workers to be eligible for 401(k) contributions drop from 1,000 hours to 500 hours.
How People Who Are Already Retired May Be Impacted
The age for required minimum distributions (RMD) will increase from 70 ½ to 72, allowing for increased deferral of taxes in retirement accounts. In addition, individuals would be able to continue saving into Individual IRAs for as long as they’d like, thus repealing the age 70 ½ cutoff. This gives people additional time to save and invest pre-tax income.
On the downside, one of our most popular legacy planning strategies – the “stretch IRA” – will be curbed. Under current law, inherited IRA accounts may be taken by beneficiaries over time, allowing accounts additional time to grow and potentially reducing tax liabilities on inheritances. The SECURE Act limits the “stretch” period to ten years.
Keep in mind, the Senate has not yet passed the bill – though it is expected – and additional changes may be made to the final legislation.
Get Advice on Navigating the SECURE Act
As with any new law, there’s always going to be aspects of it that fall under the categories of “the good, the bad, and the ugly”. As fiduciary financial planners committed to providing continuous value to our clients, we are always sifting through the nuances of new legislation like the SECURE Act and analyzing it through the lens of:
- How does this impact our clients?
- How does this change the advice we’re currently giving?
- And how can we create new financial planning strategies out of the new rules and add value to our clients’ lives?
Please do not hesitate to call us if you have any questions: (203) 790-4949.