Last week, Congress passed the SECURE Act by an overwhelming majority of 417-3. The crazy Washington acronym stands for “Setting Every Community Up for Retirement Enhancement Act” OR SECURE Act and fundamentally changes many long-standing rules regarding retirement plans. The Senate is likely to pass the Bill with minimal changes and president Trump has indicated that he will sign it into law. Some of the changes appear beneficial while others will have many people scrambling for innovative planning solutions.
While the proposed Bill makes some minor adjustments that are favorable to retirees, such as pushing the age for required minimum distributions to begin from age 70 ½ to age 72 (yawn) and further allows smaller companies easier access to establishing employee plans, it is impossible to overlook the changes that pertain to the inheritors of IRAs.
Currently, the law allows that properly structure how IRA beneficiaries are named to receive plan benefits, to “stretch” the distributions over their lifetimes, thus deferring the income taxes and allowing compound interest to work its magic. The proposed Bill will change the distribution period to a maximum of ten years, accelerating the collection of taxes for the benefit of the Treasury. We should always remember when Congress giveth, Congress taketh away.
Should this Bill be enacted, advisors and clients will be looking for creative solutions to delay the tax and allow more of their retirement plans to transfer to heirs. I suspect there will be more Roth conversions but that doesn’t have to be the only path. There are a number of creative planning solutions to consider that I’ve previously written about that will become even more popular. So while Congress may think they can collect more tax sooner, smart advisors can still enable their clients to win the retirement game