What the SECURE Act May Mean to Your Clients’ Retirement

Are you really abreast of the possible legislative changes that could impact the way you do business? Do you know that the RMD age might be increased? Read this compelling blog post for more intelligent insights!

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What the SECURE Act May Mean to Your Clients’ Retirement

What the SECURE Act May Mean to Your Clients’ Retirement

The SECURE (Setting Every Community Up for Retirement Enhancement) Act, passed recently by the House of Representatives and now with the Senate, is viewed to be the most meaningful retirement-related legislation in years.

Despite decades of progress, huge deficiencies in retirement plans remain. Chief among them are the millions of American workers still without access to retirement plans through their employers, outdated savings and age rules, and a limited ability to convert retirement plan accumulations into lifetime income.

Highlights of the SECURE Act

The major changes proposed under the SECURE Act include:

  • Making it easier for small employers to sponsor a 401(k) plan by simplifying safe harbor 401(k) rules, increasing the tax credit to offset plan start-up costs, and creating a new tax credit to defray the costs of establishing an automatic enrollment feature in new 401(k) and SIMPLE IRA plans.
  • Repeal of a maximum age for Traditional IRA contributions, which would allow working Americans over the age of 701/2 to continue to fund their retirement.
  • Workers gain portability of Lifetime Income Options. The legislation permits qualified defined contribution, 403(b) and 457(b) plans to make a direct transfer to another employer-sponsored plan or IRA of lifetime income investments (or distributions of a lifetime income investment) in the form of a qualified plan distribution annuity.
  • Long-term, part-time workers may qualify to participate in a 401(k) through an expanded eligibility requirement of three consecutive years of service of at least 500 hours of service.
  • The age at which Required Minimum Distributions must begin will be raised to 72.
  • The Stretch IRA Strategy disappears by virtue of a new requirement that the payout of an inherited IRA to a non-spousal beneficiary may not go beyond 10 years following the accountholder’s date of death.

Implications for Advisors

For advisors who have encountered resistance to establishing a retirement plan from small businesses, passage of the SECURE Act may be a good reason to go back to small employers and let them know that the economics of offering a plan have become more favorable.

Moreover, advisors may soon need to have conversations with plan sponsors about offering a lifetime annuity investment option within their 401(k) plan to address the retirement income objectives of older workers.

Finally, the SECURE Act is a mixed blessing for individuals. The positive changes include the raising of the age for commencing RMDs and the ability to contribute past age 701/2, but the elimination of the stretch IRA is a decidedly unwelcome change for IRA beneficiaries hoping to strengthen their own retirement outlook.

For now, the legislative process grinds forward, but with bipartisan support and backing from the president, some form of the SECURE Act is likely to pass, at which time we’ll update you with final details.

See referenced disclosure (2, (3) and (4) at http://blog.americanportfolios.com/disclosures/ 

About The Author

Kimberly A. Branch, CFP®

 

Vice President of Marketing Strategy 
631.439.4630 

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