Retirement: Possible Coming Changes To Your Retirement


We brought this up in our Weekly Commentary - April 7, 2019 edition and wanted to expand upon it here. 

The SECURE (Setting Every Community Up for Retirement Enhancement) Act passed the House Ways and Means Committee on Tuesday, and is said to be headed to the House floor soon. The Senate Finance Committee’s RESA Bill was introduced Monday and no committee action is scheduled yet. 

The SECURE bill is a bipartisan bill and seeks to take steps toward enhancing the available tax breaks for retirement savers, as well as encouraging more people to participate. With bipartisan support, there's an above average chance that the SECURE Act could become law, and so it's important to anticipate some of the changes that could result. 

Concurrently, There is a bill in the Senate.  The Retirement Enhancement and Savings Act (RESA) is an amendment to the ERISA bill from 2018, which we discussed last fall.

The ERISA/ RESA bill's main purpose is to provide multiple employer retirement plans (MEPs) to reduce the cost of providing retirement plans to employees at small businesses. It also repeals the maximum age for Traditional IRA contributions, among other changes.

Both bills include a revenue-raising measure (read: more tax) that would curb the tax deferral benefits of “stretch” IRAs.  

Under current law, a beneficiary who inherits an IRA or 401K account upon the death of the account owner can choose to take payments over their expected lifetimes with amounts remaining in the retirement account continuing to accumulate tax-deferred. This is the ability to ‘stretch’ the inherited retirement assets and spread the withdrawals, reducing the beneficiary's tax exposure.

The RESA bill would limit these "stretches" to aggregate account values under $450,000.  Any amount over this must be distributed within five years of the death of the account owner.  There are exclusions such as if the new owner is disabled, a child, etc.

The SECURE Act is slightly different.  It has no minimum account value but would limit payout to 10 years.

The main points of the SECURE Act are:

  • Required minimum distributions (RMDs) from traditional IRAs and 401Ks wouldn't begin until age 72, up from age 70 1/2 currently (This is only in the House version;  the Senate version keeps it at age 70 1/2).

  • Repeals the maximum age for traditional IRA contributions

  • Allows 529 College Savings Plans to be used to repay student loans, apprenticeships, and home schooling expenses.

  • Gives families access to their own retirement accounts to support parental leave for the birth or adoption of a new child.

  • Forces employers who have retirement plans to offer them to all employees, including part-time workers.

  • Adds a new tax credit to encourage small employers to set up and automatically enroll their employees in retirement savings plans. Another expanded tax credit would be available for small employer pension plan startup costs.

While RESA has many similar points:

  • Create the MEPs discussed earlier

  • Repeals the maximum age for traditional IRA contributions

  • The legislation removes the cap that required automatic escalation of employee deferrals go no higher than 10% of employee pay under an automatic enrollment safe harbor plan

  • Increases a new tax credit of up to $500 per year to employers to defray startup costs

  • Treats certain taxable non-tuition fellowship and stipend payments as compensation for IRA purposes

  • Expands opportunity for IRA ownership of S Corporation bank stock

  • Prohibits qualified employer plans from making loans through credit cards and other similar arrangement.

(Source: RESA 2018 Summary)

Remember, these bills have been modified multiple times and there will most likely be further modification upon reconciliation between the House and the Senate. After that the bill will have to pass both chambers and then meet the approval of President Trump.  All this to say what we know today, will almost assuredly change tomorrow.  

It is a fluid situation and we will keep you updated as news progresses.