On May 23, 2019, the United States House of Representatives overwhelmingly (417-3) passed the SECURE (Setting Every Community Up for Retirement Enhancement) Act. The SECURE Act would make significant changes to retirement plans such as (1) moving back the start dates for Required Minimum Distributions (“RMD”) from age 70 ½ to age 72, (2) expanding small employers’ capabilities to offer some form of retirement savings to employees thru tax credits and multiemployer plans spanning across different industries, (3) increasing annuity options inside retirement plans, (4) removing age limitations on IRA contributions, and (5) modifying the “stretch” IRA rules to accelerate RMDS.
The SECURE Act does not impact the current rules which allow a spouse to rollover their deceased spouse’s IRA into a “spousal IRA”, but does impact the currents rules allowing a non-spouse beneficiary to “stretch” their IRA distributions over their own life expectancy. Under the Secure Act, a non-spouse beneficiary would be required to take distributions over a ten (10) year period which has the effect of accelerating income tax collection and pushing beneficiaries into higher tax brackets. This is a revenue raiser for the government.
The SECURE Act needs to be reconciled with the Senate’s version of a retirement bill which is called the Retirement Enhancement Securities Act (“RESA”). The latest version of RESA allows a stretch on the first $400,000 of aggregated IRAs exclusion per beneficiaryand the exceeding balance must be distributed within 5 years, not 10 years. Unfortunately, there is little hope for the survival of the “stretch” IRA for non-spousal beneficiaries. Although the House’s bill has stalled in the Senate due to a few Senators objections, there is overwhelming support for passage of a bill which will dramatically change the “stretch” rules and intense lobbying by insurance groups eager to sell annuities to retirement plan participants. Stay tuned.
