Skip to comments.The SECURE Act is changing retirement — here are the most important things to know
Posted on 01/28/2020 8:16:41 AM PST by ProtectOurFreedom
President Trump signed the SECURE Act this week (January 8, 2020) as part of the governments spending bill and it will inevitably affect most retirement savers, for better or worse.
The SECURE legislation which stands for Setting Every Community Up for Retirement Enhancement puts into place numerous provisions intended to strengthen retirement security across the country.
Part of the bill addresses the grim outlook for many workers who dont have access to workplace retirement accounts.
It offers small businesses tax incentives to set up automatic enrollment in retirement plans for its workers, or allows them to join multiple employer plans, where they can band together with other companies to offer retirement accounts to their employees in the first place. The bill also eliminates the maximum age cap for contributions to traditional individual retirement accounts.
(Excerpt) Read more at marketwatch.com ...
Required minimum distributions have also changed for non-spousal account inheritors. Under the current law, beneficiaries who did not inherit their accounts from a husband and wife are in some cases allowed to withdraw required minimum distributions for the span of their lives, which could be a few years, or a few decades. The amount of the distribution is calculated based on a few factors, including life expectancy and beneficiary age.When you pass and your kids inherit your IRA, your kids now have only TEN YEARS to distribute the balance of the IRA pay tax on it. Previously they could spread the withdrawals out over their lifetime which might have been 20 or 40 years. Now your kids will get hit with a HUGE near-term tax hit when they inherit your IRA. The inherited IRA no longer stays tax-sheltered for 20 or 40 years.
The SECURE Act requires beneficiaries withdraw all assets of an inherited account within 10 years. There are no required minimum distributions within those 10 years, but the entire balance must be distributed after the 10th year. This change can be problematic for some beneficiaries, especially if they are in their 40s and 50s and at the peak of their earning years. Limiting the time frame in which someone can distribute money from an inherited account means potentially boosting the tax burden those distributions will cause.
This change quietly flew under the radar prior to signing by President Trump and is a royal screw-job for anybody who amassed some savings (and doesn't burn through it with healthcare and nursing home costs). This ia another one of the very few tax breaks available to middle-class Americans that has been yanked away.
So they're doing the next best thing, and taxing the survivors at an accelerated rate, because spending is going up exponentially, but revenue at most geometrically.
Good point. They are chipping away at protections until they are all gone. California is chipping away at Prop 13 property tax protections as we write.
They could tax everybody at 100% and not come close to satisfying their appetite for spending.
Keystone from the cops of the same name.
Bad times demand more spending.
Good times are an opportunity to spend more.
Lather, rinse and repeat.
By now we are way, way past pump priming and on to economic masturbation that would embarrass the sex fiend character in Dr Sax.
I had a discussion with my retirement planning folks just last week about this. It does impact retirement planning, but depending on how you have been saving, it does not have to be such a huge impact.
The big take-away is that the govt wants its tax on earnings and they want it sooner rather than later, thus the change that affects PRE-TAX retirement accounts. If you save or convert to Roth or other post-tax retirement IRA’s, etc, there is no impact.
Perhaps more importantly, the tax savings by taking the hit tax early and not using PRE-TAX retirement mechanisms is huge, like 7 to 8 figures huge over the course of a 30 year retirement. Again, it seems like a big hit to convert from non-Roth to Roth and take that tax hit now, but over time, the tax savings far outweighs (by orders of magnitude) paying the tax today and having future gains tax free.
Get rid of SSI for millennials-those under age 36. That gives them 30+ years to get it right. Pay off those up to age 55-just what they put in. Those over 55 will be mostly dead. Take theirs from the general fund and eliminate millionaires from the program. Last Congress has to pass a law limiting ALL government pensions to $40k.
They will NEVER allow anyone within the common “unwashed masses” to amass any true wealth of any size...whether thru an individual’s lifetime or thru their offspring’s lifetime. The “unwashed masses” are nothing but cattle to them. Cattle to do the work year after year and to be “milked” every April 15th.
It’s part of the the nasty creature from Jekyll Island’s agenda (communism), and they’re implementing it “under the radar” as best they can without being strung up for it. “Boiling the frog” so to speak, but the water is getting pretty darn hot.
The government giveth, and the government taketh away. It really regretted “allowing” us to save for retirement, and is now doing all it can to get back control over what it feels is IT’S money.
The fact is that the government is broke, and there are $5.7T ins 401K plans. NO WAY the government is not coming after that money- especially since most of the money is held byWHITE PEOPLE.
You guys hit the nail on the head. It just really pisses me off this crap flies under the radar for a short period of time, Congress passes it, Trump signs it, and our kids are screwed.
I’m always been amused by the title of these bills because they’re usually just the opposite of their titles. I guess they think the titles are fooling the stupid “cattle”...they’re not.
There’s nothing “Secure” about it.
There was nothing “Affordable” about odongoCare.
etc., etc. Yeah, Keystone Cops is a pretty good comparison.
Eliminating the stretch IRA provides financial "security" to the Treasury who gets the tax money sooner.
This has made ROTH IRA so much more attractive, both for conversions, and,
for current savers.
I am not opposed to Roth IRAs on principle, but when I was told by my retirement account manager to consider a conversion from my traditional IRA to a Roth IRA back in the late 1990s I told him it was a terrible idea. Here was my rationale:
If you convert a traditional IRA to a Roth IRA, you have to pay the tax on the asset now. This facilitates the conversion of a PRE-TAX retirement account to a retirement account where you won't pay tax at some unspecified future time. The problem I have with this process is that nothing prevents Congress from passing a law between now and the date of your retirement that turns withdrawals from an "untaxed" Roth IRA into a taxable event.
In other words ... I figure it's better to have a certain tax break today than bank on one in the future that might disappear.
I'm not a financial advisor, but I found it very telling that my retirement account manager STOPPED advising clients to do Roth conversions very soon after I had this conversation with him.
I’m not a financial advisor, but I found it very telling that my retirement account manager STOPPED advising clients to do Roth conversions very soon after I had this conversation with him.
Well, if he/she is not at least giving them the pros & cons, he/she is doing them a disservice.
Yeah, they want their taxes faster in the government and yes, at a higher rate.
THis is absolutely true, but I’m not sure it is a bad thing.
The idea of IRAs was always a deferral of the owner’s tax liability, to be then paid back during retirement or at death.
It was not intended to be rolled over into a retirement plan for future generations.
Yes, your kids will pay taxes on it, at their rate, over a period of 10 years. But it was free money to them, and it was never taxed before.
ANd while you can’t control when you die, if you think your tax burden is lower than your kids tax burden, you can take out as much of your IRA as you want while you are alive, pay the taxes at your rates, and re-invest the money so the kids can get it without tax burdens.
I’ve been looking into converting my IRAs to Roth IRAs after I retire, over a period of years, to take the tax hit and be done with it so I don’t have to worry about taxes when I am older.
Wonder if establishing a Trust that could inherit IRAs (as opposed to non spousal heir) would make sense
I am not selling anything. I saved most of my life in non-Roth and came in late to Roth, so about half my retirement is non-Roth. I wouldnt be changing anything, but the tax analysis my planner did showed me that the difference in my retirement egg could be as much as double (as I indicated earlier, for me that was 7 figures) as my retirement accounts grow between now and when I am 90. (Thats the age my retirement planners used to figure when I should check out - lol). Anyway, that was with me and my wife drawing a comfortable retirement the entire time and leaving an almost 8 figure account for my wife or heirs. It convinced me of the value of conversion. And I am using a portion those pre-tax accounts to pay the taxes on the conversions so to me its no out of pocket difference. But, yes, it took a careful analysis by someone who could show me the numbers and explain how it works to get me to change my strategy.
If you have Roth IRA’s or 401k’s they can be put in a trust or will’ed to heirs tax free, though under the new law, I think the heir has to take the contribution within 5 years or something like that.
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