facebook twitter instagram linkedin google youtube vimeo tumblr yelp rss email podcast phone blog search brokercheck brokercheck Play Pause
How Congress is Trying to Change your Retirement  Thumbnail

How Congress is Trying to Change your Retirement

In May of this year, The House passed The Setting Every Community Up for Retirement Enhancement (SECURE) Act with a vote of 417-3.  The bill is aimed at improving the nations retirement savings.  A slightly different version of the bill still has to make its way through the Senate and on to President Trump's desk before it will become law.

The bill addresses many different retirement savings issues such as making it easier to purchase annuities within a 401(k), allowing a special withdrawal for the birth or adoption of a child, making it easier for plan sponsors to offer annuities as well as increasing a their ability to auto-enroll/escalate participants.  

If you are approaching or in retirement there are several aspects of the law you will want to pay special attention.   

1.  Repealing the maximum age for making contributions to Traditional IRA

Currently, once you hit age 70.5 you are no longer eligible to make contributions to a Traditional Individual Retirement account.  If you are still working, you will be limited to your current employers Retirement Plan.  This change will give those over 70.5 and still working the ability to contribute an additional $7000/ year (potentially $14,000 if married) to a tax deferred savings vehicle.  

2. Increasing the age for starting RMDs

When you reach the age of 70.5 the government says that you must start taking withdrawals from all of your Tax Deferred IRAs and 401(k)s. (Assuming you are no longer working, in which case your current 401(k) is exempt).  They call these Required Minimum Distributions and they are based on a formula which includes your age and the aggregate balance of your 401k and IRAs. Your first RMD must be taken by April 1 of the year after you turn 70½. Subsequent RMDs must be taken by December 31 of each year.  The new law will push these RMDs out until age 72, giving you more time to keep your money in a tax deferred vehicle.  

3. Eliminating the Stretch IRA provision for non-eligible Beneficiaries 

When someone inherits an IRA from a someone other than their spouse there are RMD rules that need to be followed.  As it stands now, ff the original IRA owner died after reaching age 70½, then you may elect to calculate those RMDs by using your own age or by using the original IRA owner's age in their year of death. Depending on the situation this could be very advantageous from a tax planning perspective.  If the recipient of the IRA is in their prime working years and doesn't have a need for the income, a large distribution could cause them to climb into some of the highest tax brackets. The bill passed in the house would require that the IRA be completely drained WITHIN 10 YEARS of the IRA owners death.  Those distributions may be taxed at 45% or higher depending on the individuals tax situation.  If you leave behind an IRA of $1 million dollars, more than $450,000 could be sent to the Government! 

There is still a long way to go with reconciling the differences between the house and senate bill and ultimately getting a revised bill signed into law.  However, as you can see that impact of these changes could be significant.  If a version of this bill goes into law, there will be many planning opportunities available in order to maximize the efficiency of your tax planning throughout retirement.  If you're concerned about how these new changes may effect you or would like to chat about the tax efficiency of your retirement income plan, Click here to request a free, no-obligation conversation today.