In early 2019, the House passed the Setting Every Community Up for Retirement Enhancement Act (SECURE Act) with a vote of 417 to 3. With the Senate working on a similar bill, the Retirement Enhancement and Savings Act (RESA), it appears there may be meaningful retirement reform this year. The provisions of these bills are too numerous to detail in full, but here are some highlights:
Increased Small Employer Access to Retirement Plans:
The intent is to expand retirement plan options of small employers by allowing them to band together to create a 401k plan with lower costs and less fiduciary liability on the employers.
Tax Credit for Automatic Enrollment:
Smaller employers would receive a tax credit of $500 to help encourage automatic enrollment into the retirement plan.
Increased Annuity Options Inside Retirement Plans:
This new rule would ease some liability concerns for retirement plans that offer annuities. Annuities are sometimes used as a strategy to provide lifetime income.
Increased Required Minimum Ages:
Both the House and the Senate have proposed an increase to the required minimum age at which Required Minimum Distribution commences. The House’s bill proposes changing the minimum age from 70.5 to 72. The Senate’s version increases that age to 75.
Removal of Age Limitation on IRA Contributions:
The SECURE Act removes the current IRA contribution age cap of 70.5, so people who work later in life may continue to contribute to an IRA.
Penalty-Free Distribution for Birth or Adoption of a Child:
Up to $5,000 may be distributed penalty-free in the event of a birth or adoption of a child. This
distribution must occur within one year of the birth of the child or the adoption becoming final.
Lifetime Income Disclosure for Defined Contribution Plans:
The SECURE Act would require defined contribution plans to prepare and deliver a lifetime income summary to participants at least once every 12 months. This disclosure should help participants plan their future retirement income.
Removal of “Stretch” Inherited IRA Provisions:
The House bill would require most beneficiaries to distribute any inherited IR A account over a 10-year period as opposed to the current ability to stretch over a beneficiary’s lifetime. The Senate bill contains significantly different verbiage but would end the stretch provision for inherited IRAs over $450,000.
It is important to note that this is only a preview of what legislation may pass this year, and none of this information is yet law. The team at NNP is monitoring the progress of this legislation and will be ready to assist if and when any legislation is signed.