Posted by Unifirst Financials & Tax Advisors

Secure Act Explained

Secure Act Explained

From the beginning, 2019 seemed to be the year of retirement for Congress. Last year ended with a series of developing retirement bills that were submitted to DC, committees, panels, and lobbyist. We are ready to adopt relevant legislation.

And we now have the first real gesture of the year: The Setting Every Community Up for Retirement Enhancement Act approved by the Chamber of Deputies with a vote of 417 against 3 on Thursday, which should be submitted to the Senate in the current legislature.

The SECURE Act would be the first significant retirement legislation after the Pension Protection Act of 2006. This happens after the 2017 labor law, and the labor courts have been severely sanctioned by all the essential provisions of the reform, which were initially discussed in the Trump administration.

Although the bill contains substantially 29 new provisions or significant amendments, I want to focus on only eight areas. An important note: the SECURE Act has not been finalized yet. The Senate has a similar bill before being called the Retirement Enhancement Securities Act (RESA) and, as is often the case, some of its provisions can enter SECURE Act or parts of the law. SECURE Act can be changed by a committee or other action before Congress before it can then be signed into law.

Although the law facilitates some retirement savings blocks, such as eliminating the age limit of the IRA, lengthening the start date of the RMDs, increasing annularity options and possibly the opportunity for small employers to start planning their retirement, there is still a strong argument that these changes, while positive, will not significantly displace pension security. Many of these changes can only be considered for the benefit of wealthy IRA owners who do not yet need RMDs and a clear signal for lobbying their products.

The major challenges facing retirees for most Americans are still the funding of social security, the rising cost of health care due to rising drug costs, Medicare and Medicaid pressures, and about one-third of the American population that does not spare for retirement, they are small and changes to savings plans will probably help this group. This does not mean that the provisions of the SECURE Act are not positive changes; they simply will not do much to solve the real pension problems facing Americans. 

That being said, the current version of the SECURE Act contains eight main parts which, in my opinion, deserve further analysis.

Increase Small Employers' Access To Pension Plans

Title 1 of section 101 of the Act would make significant changes to various pension rules. This would improve the ability to execute multi-employer schemes and facilitate the overall process. In practice, this would allow small employers to come together to establish and propose 401(k) plans with less responsibility for fiduciary responsibility and lower costs than currently exist.

The aim is to try to improve the ability of small employers to provide employees with some kind of retirement savings. Overall, it is a frustration with previous legislative attempts since IRA SIMPLE and SEP were developed in part to achieve this goal, but were ultimately not completed as a large pension plan ladder for children. Employers As such, the SECURE Act will continue to combat this serious problem, as many small employers do not offer retirement savings options, leaving the issue to the person concerned.

Increase Annuity Options In Your Retirement Plans

Sec. 204 is attempting to update the secure port offering for plan sponsors to select annuity providers to provide rents within the plan limits in a range of 401(k). Today, many 401(k) remains outside of life annuities, in part because of concerns about the responsibility of choosing a pension provider for the plan. The new rules would partially alleviate this problem of liability, possibly threatening the creation of more pension annuities.

Increase The Minimum Age Required

Today, the law requires most people to withdraw mandatory minimum distributions from their retirement account at 70.5 years. The SECURE Act would delay this obligation at the age of 72. The RESA now works before the Senate attempts to enforce MDG requirements over the next 75 years.

However, one critique of this provision is that it benefits, in particular, those who benefit from a significant deferred tax saving, allowing them to increase this money further. Other suggested changes to the RMD rules include allowing smaller accounts, for example under $100,000, depending on the withdrawal requirements of the account owner.

Elimination Of The Age Limit For Contributions To The IRA

Over the years, one rule has mostly discouraged pension savings in the IRA for people who continued to work later in life. After 70 years, I could not contribute to the IRA, but surprisingly, I could add to a Roth IRA. Sec. 114 of the Sureties Act would remove this savings limit by repealing the age limit for traditional contributions to the IRA.

Tax Credit For Automatic Registration

Sec. 106 introduces a new $500 credit to help some small employers encourage automatic enrollment in their pension plan. This small loan could help to offset the costs of executing a plan quickly. Automatic registration has been a great success in increasing employee participation in the plan.

Distribution Without Penalty For Delivery Or Adoption

An exciting and welcome addition was a 72% (t) reduction of 10% in the tax on early retirements of pension accounts. The new rule, found in the sec. 113 would authorize the distribution of a total amount of $ 5,000 from a pension plan without penalty of 10% in the case of a qualified birth or adoption. The distribution must take place in the year following the adoption until the end of the birth of the child.

Lifetime income information for defined contribution plans

The law would require defined contribution plans to provide members with a statement of decent income at least every 12 months. This information on the annuity income would mainly show the income that the lump sum could generate in the retirement account.

The method of calculating the annuity is in progress. Additional information on assumptions used should be provided to participants.

Elimination Of IRA Inherited From "Stretching."

The SECURE Act would make meaningful changes to previous pension plans such as traditional 401(k), traditional IRA, and Roth IRA. In the past, recipients of these accounts could generally distribute distributions based on their life expectancy.

However, the new law includes what is considered a tax provision that would require most recipients to distribute the account for over 10 years. This change would accelerate the depletion of accounts inherited from many large IRS and pension plans.

In general, beneficiaries quickly inherit small hereditary accounts. However, from the opinion of public policy, the end of the so-called IRA account or "retirement" is very reasonable, especially since the Supreme Court has established that legacy accounts are not "retirement" accounts. "

Therefore, it makes no sense in politics to allow a broader tax benefit by withdrawing the beneficiary. The RESA bill looks very different but would also close the expanded provision of the more substantial IRA inherited from more than $450,000.

The potential tax burden resulting from the faster distribution of traditional pension accounts will increase the need for proper inventory planning and a more strategic Roth strategy throughout the account holder's life, which will increase the complexity pension plan planning. retirement and succession.

With the SECURE Act addressed to the Senate, with the most general support of the parties in the Chamber of Deputies, the likelihood of possible approval seems exceptionally high. However, the changes are likely.

Although the SECURE Act brings positive change, it goes even further but does not promote retirement security for those persons who need it the most.

Unifirst Financials & Tax Advisors
Contact This Member