The intention of the Setting Every Community Up for Retirement Enhancement Act of 2019 is to make it easier for Americans to start retirement funding earlier in life, but some are calling it the Extreme Death Tax for IRA and Retirement Plan Owner’s Act.  Currently only 40% of Americans utilize their retirement benefits offered by their employers and only 51% of employers actually offer retirement benefits.  Here we will look at what the SECURE Act of 2019 aims to do compared to what it really means in estate planning with clients 401(k) and IRA accounts in mind.

The SECURE Act of 2019 mainly aims to make 5 major changes:

1. Make it easier for small businesses to offer retirement plans for their employees by getting rid of some of the high cost administrative burdens and red tape.  Local businesses will be able to tailor retirement plans for their needs and could possibly work with other small businesses to form a multiple employer 401(k) plan(s).  This might sound like a great idea, but how many small businesses will actually do this?  Some Senators have said that part-time workers will finally have access to plans that were only accessible to full-time employees, but if large corporations don’t offer part-time employees these benefits, why would Congress think that small business would?
2. Raise the required minimum distribution age for retirement plans from 70.5 to 72. Congress says this change is aimed at keeping seniors from spending their money too early in retirement.
3. Repeal the maximum age for making traditional IRA contributions.
4. Facilitate access to annuities in retirement plans. The SECURE Act would create more options for lifetime-income investments within employer plans.
5. Change stretch-out options for most beneficiaries. This impacts elder law planning since we often make end-of-life plans around a large retirement account.  Currently, a designated beneficiary can stretch-out distributions from the retirement plan over their life expectancy, through conduit or accumulation trust provisions. This allows funds to continue to grow, tax-free, for many years.  Under the SECURE Act the rule would declare that a designated beneficiary must withdraw all of the funds from the retirement plan within 10 years of the participant’s death.  This would likely result in a much shorter time-frame for a designated beneficiary to keep the funds growing in the retirement plan and may upend planning strategies for many attorneys.  There are exceptions if the beneficiary is the participant’s spouse, the participant’s minor child, disabled or chronically ill, or is not more than 10 years younger than the participant.

The SECURE Act was passed with an overwhelming majority in the House of Representatives and is favored to pass in the Senate.