Does the SECURE Act Retirement Bill help workers and the wealthy fairly?

The SECURE Act Retirement Bill, passed in the House on May 16, 2019, and expected to make it through the Senate this term follows closely on the heels of a similar bill, the RESA Act, which is also before the Senate. The two bills offer different twists to solutions on several of some 26 SECURE Act issues and the passing of either or both bills will probably be a blending of the two.

SECURE Act
Setting Every Community Up for Retirement Enhancement Act 2019

RESA
Retirement Enhancement and Savings Act of 2019

Who gets what with The SECURE Act Retirement Bill

Although the SECURE Act has positives and is a much-needed nod in the right direction, there is little possibility that it will significantly impact the average person who is facing real retirement difficulties. Some of the issues have dramatically different effects on the average person and the wealthy, such as these:

Extending the age before Required Minimum Distributions must be taken from retirement funds and removing age limitations for traditional IRA contributions may appear at first glance to be no big deal. Not so.

Wealthy retired IRA owner’s who don’t need the money or don’t want the tax implications associated with Required Minimum Distributions (RMDs) will be able to put off distributions from the current 70-1/2 years of age to the proposed new age of 72.
The RESA Act is pushing for age 75. Retirees with significant tax-deferred accounts could find themselves with nearly five additional years to allow their money to grow.

Thankfully, for individuals who are frantically working and contributing to shore up their IRA accounts before reaching the current cutoff age of 70-1/2, the SECURE Act seeks to remove this age limitation on contributions to traditional IRA contributions.

Who can contribute to these traditional IRA accounts?

Currently, if you (or your spouse) earn taxable income and are under age 70 ½, you can contribute.
If you have no retirement plan at work and you’re younger than 70 ½, you can put money in (up to the annual contribution limit) and deduct the entire amount from your taxes. (If your spouse doesn’t work outside the home, he or she can also invest up to the federal limit and deduct the full amount.)

2019 IRA Details
Before SECURE Act Retirement Bill and RESA
Click for Investopedia May 17, 2019 Update

Enhanced tax credits for employers

Workplace retirement savings plans are available to barely over half of the workforce. The SECURE Act proposes to ensure that the nation’s 27 million part-time workers, the majority of whom are women, will have access to workplace retirement plans. The Act enhances tax credits for employers offering plans with automatic enrollment and enables employers to join multiple-employer defined contribution plans that serve as fiduciaries.

Although offering benefits to some employees, closer inspection shows a considerable advantage to business owners who will see substantial tax and retirement opportunities.

Safe harbor for retirees

In an effort to help guard against retirees outliving savings, the SECURE Act would update the safe harbor provision for plan sponsors to select annuity providers in order to offer in-plan annuities inside of a 401(k).

This does provide workers the opportunity to lock in a lifetime stream of income through their 401(k) plans, but a few eyebrows have lifted at the negative reputation annuities have for their upfront expense and uncertain payouts.
Also, employers may need more guidance than the SECURE Act will provide to ensure providers are up to par.

Penalty-free distributions for the birth of a child or adoption

Early withdrawals from retirement accounts usually incur a 10% penalty tax. However, this new rule, Sec. 113, allows an aggregate amount of $5,000 to be distributed from a retirement plan without the 10% penalty in the event of a qualified birth or adoption within one year of the adoption being final or the child being born.

The removal of “stretch” inherited IRA provisions

Significant changes to inherited retirement plans like 401(k)s, traditional IRAs, and Roth IRAs are being made. In the past, beneficiaries of these accounts could typically spread the distributions over their own life expectancy.

These proposed changes could be the most significant in these Acts, especially since SECURE and RESA have different provisions. Wealthy individuals will quickly realize the potential tax burdens brought on by faster distributions of inherited retirement accounts and could find themselves scrambling to make some tax and legacy planning adjustments they before the end of the year.

Anything else?

For individuals who don’t normally consult with their tax or retirement specialist, SECURE Act Retirement Bill and RESA could cause some unpleasant tax surprises and require some crafty legacy planning changes.

The SECURE Act Retirement Bill
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This provision brings additional complexity to your retirement, tax, and estate planning. With nearly across the board support for the SECURE Act and RESA and conflicting solutions offered by both, if you have not previously sought professional tax and legacy planning, the SECURE Act Retirement Bill alone is reason enough to schedule your mid-year tax review immediately.

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