SECURE Act Explained! Retirement Solution? or IRA TAX Grab? (Secure Act 2020) The Secure Act is here, but it is designed to help you plan for retirement or hurt your inheritance? What is the secure act?

Video Outline and Time Stamps so you can quickly jump to any topic:

• Retirement IRA RMD rules have changed! – 0:37
• More retirement options for part-time employees – 1:14
• Changes to automatic enrollment 401(K) cap – 1:46
• Annuities coming to 401(K)s? – 2:37
• Taxes on inherited IRAs – 2:59
• Exceptions to these rules – 5:58
• Other important provisions of the Secure Retirement ACT – 6:10
• My overall thoughts regarding the secure act – 7:10

Here are some of the key highlights (These are highly summarized)

1. RMD Age (for Some) Pushed Back to Age 72
Right now, those with traditional IRAs have to start taking required minimum distributions (RMDs) by April 1 following the year in which they turned 70 ½.

This provision takes effect on January 1, 2020. So, if you’re slated to turn 70 ½ in 2020, you’ll receive a reprieve until age 72. However, if you’re already 70 ½ as of the end of 2019, you’re stuck with the old rules and must take your first RMD no later than April 1, 2020. And if you’re already receiving RMDs (or required to) because you’re over 70 ½, you must still continue to receive your RMDs or face the 50% penalty. To sum it up, anyone born on or before June 30, 1949 will be age 70 ½ by December 31, 2019 and must begin/continue taking RMDs. The new rule does NOT affect you.

If you’re in a 401(k) or other employer qualified plan, you already had an exception to the normal 70 ½ required beginning date for RMDs, but you had to still be working for the company to take advantage of it. If you’re still working for the company with the 401(k) plan, and age 70 ½ or older, you can postpone your RMD until you quit/retire from your employer. This ability to delay RMDs until you actually quit/retire remains the same under the SECURE Act.

2. Removal of Traditional IRA Contribution Age Limit
Currently, if you’re age 70 1/2 or older, you can’t make contributions to a traditional IRA. However, as of January 1, 2020, that restriction is no longer in place. There will no longer be age restrictions on making IRA contributions. So, it’s possible that you could be taking RMDs at some point and still able to put money into your traditional IRA. Whether it’s deductible still will depend upon your modified adjusted gross income. (See IRS Pub 590-A for income limits for deductions.)

Note that the effective date won’t change your ability for the 2019 tax year. If you’re hoping to make a previous year contribution for 2019 after the first of the new year, and you’re above age 70 ½, that won’t work. The change is only for 2020 contributions and years going forward.

Remember that you can still make 2019 (and 2020) Roth IRA contributions regardless of age as long as your income is below the threshold (for 2019: $137,000 for single taxpayers and $203,000 for married filing jointly). That did not change under the SECURE Act.

3. Part-Time Workers Might Be Able to Access Retirement Benefits
The SECURE Act also expands access to certain employer-sponsored retirement plans. Starting with the 2021 plan year, employers are expected to offer retirement benefits to workers who have been with the company for at least three years, and who work 500 hours or more each year.

Right now, some employers aren’t required to offer coverage to those who work less than 1,000 hours for the company in a year. This may change the landscape for part-time workers, including older employees who work part-time during retirement.

4. Elimination of Stretch IRAs
Many folks save in IRA accounts for themselves but also because at their death they want to leave some of their savings to heirs or beneficiaries. Beneficiaries who receive an inherited IRA are generally able to elect how frequently they receive the money. One option is what is known as a “stretch” IRA, which allows beneficiaries to withdraw money based on life expectancy. With the SECURE Act in place, however, this option goes away for many.

The elimination of stretch IRAs has the potential to force beneficiaries to take larger distributions from inherited IRAs and might result in higher taxes, depending on the situation. For example, Roth IRA distributions are generally not taxable to beneficiaries, so taking the money out of the Inherited Roth IRA account probably has minimal impact on Roth beneficiaries. Traditional IRA beneficiaries do have to pay taxes on most or all of their payments though.

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The SECURE Act, also known as the Setting Every Community Up for Retirement Enhancement Act, was signed into law in December 2019, and its provisions went into effect on January 1, 2020. The Act was aimed at increasing retirement savings, improving access to retirement plans, and making it easier for individuals to manage their retirement investments. However, the Act has received both praise and criticism, with some hailing it as a retirement solution and others calling it an IRA tax grab.

One of the central provisions of the SECURE Act is the increase in the age for required minimum distributions (RMDs) from IRA and other tax-deferred retirement accounts. Previously, individuals had to start taking distributions at age 70 ½, but the SECURE Act raised the age to 72. This change was intended to allow individuals to keep their retirement savings invested for a longer period and potentially grow their savings more before taking distributions.

The Act also includes provisions aimed at expanding access to retirement plans, including a tax credit for small businesses that start a retirement plan and making part-time employees eligible for retirement plans. Additionally, the Act includes provisions to make it easier for employers to offer annuities as investment options in their retirement plans.

One particularly controversial provision of the SECURE Act is the elimination of the “stretch IRA.” Previously, beneficiaries of inherited IRAs could stretch the required minimum distributions over their lifetimes, potentially allowing them to stretch out the tax-deferred growth of the inherited account over many years. Under the SECURE Act, most beneficiaries will have to withdraw the entire balance of an inherited IRA within 10 years, potentially causing a significant tax burden for beneficiaries.

Critics of the SECURE Act argue that the elimination of the stretch IRA is a tax grab by the government, as it will accelerate the tax payments on inherited IRAs. Additionally, some argue that the Act does not go far enough in addressing the retirement savings crisis in the United States.

Proponents of the SECURE Act argue that the Act is a significant step forward in improving retirement savings and increasing access to retirement plans. They argue that the elimination of the stretch IRA will ultimately benefit taxpayers by generating revenue for the government and that the Act will allow more individuals to save for retirement.

In conclusion, the SECURE Act is a comprehensive retirement savings bill that is intended to improve access to retirement plans, increase retirement savings, and make it easier for individuals to manage their investments. While the Act has received criticism for the elimination of the stretch IRA, it has also been praised for the provisions aimed at expanding access to retirement plans and increasing retirement savings. Only time will tell if the SECURE Act will truly prove to be a retirement solution or an IRA tax grab.