‘The Good, The Bad And The Ugly’ Of The SECURE ACT

The Setting Every Community Up for Retirement Enhancement (SECURE) Act was passed by the House over the summer and the Senate on December 19th before being signed by President Trump on December 20th as part of the Further Consolidated Appropriations Act, 2020. The legislation has a combination of good aspects, negative portions, and possible ‘ugly’ outcomes.

The positive aspects of the Act are geared towards senior workers and improving retirement, including allowing IRA contributions beyond age 70½ if the contributor is still working and the required minimum distributions (RMDs) has been raised to age 72 rather than 70½. It will be simpler for part-time workers that have been employed long term to be able to join their company’s 401(k) plan. Family planning will be easier now because each parent can withdraw up to $5,000 penalty-free when a child is born or adopted.

But one of the more non-positive parts of the legislation is the removal of the stretch IRA, which allowed a non-spousal beneficiary of a qualified plan to withdraw their distributions each year over their lifetime, based on the IRS rules and life expectancy table. Now, a non-spouse beneficiary of the IRA must withdraw all distributions within 10 years, and pay the subsequent taxes of the payout, usually while they are still working.

That slides right into the ugly part of the Act. IRAs are intended to assist during retirement, but many beneficiaries will be forced to take out significant distributions will employed. Many part time workers or employees of smaller businesses that were meant to benefit from the legislation, are not in a position to take advantage of the new rules and save more for retirement because they spend all the income on a month to month basis.

See Michael Chamberlain, ‘The Good, The Bad And The Ugly’ Of The SECURE ACT, Forbes, February 12, 2020.

Special thanks to Mark J. Bade (CPA, GCMA, St. Louis, Missouri) for bringing this article to my attention.