24
ID Trends
TRENDING IN LIFE:
The SECURE Act
Thomas F. Commito, J.D., LL.M.,
ChFC, AEP, is an advanced sales
consultant for Lincoln Financial
Distributors. Having Series 7
and Series 24 licensing, he is the
author of two books, Working
with LLCs: A Practitioner’s Guide
to Limited Liability Companies and
Comprehensive Buy-Sell Agreements.
The Setting Every Community Up for Retirement Enhancement Act (SECURE Act) passed in
the House with a 417-3 vote on May 23, 2019 and may make it through the Senate during
this current term. Even though the Tax Cuts and Jobs Act of 2017 (TCJA) originally included
major retirement proposals, they were eliminated due to lack of time in completing the
TCJA. Consequently, the SECURE Act would be the first real major retirement legislation
since the Pension Protection Act in 2006.
The Senate has a similar bill before it called the Retirement Enhancement Securities
Act (RESA). Many of the RESA’s provisions are similar to the SECURE Act. Sections of the
SECURE Act may be modified through committee or other Congressional action before
being signed into law. The bill does make some minor changes to retirement savings—such
as removing the IRA age limitation, expanding the start date for RMDs, increasing annuity
option in 401(k) plans, and potentially increasing the likelihood of small employers starting
retirement plans.
However, as a revenue raiser, the SECURE Act would essentially do away with the stretch
IRA as we now know it. The proposed legislation would change the rules for defined
contribution plans and IRAs upon the death of the account owner. Under the proposed
legislation, distributions to beneficiaries other than the surviving spouse; disabled or
chronically ill individuals, individuals who are not more than 10 years younger than the
account owner, or child of the account owner who has not reached the age of majority,
would generally be required to be distributed by the end of the 10th calendar year
following the year of the employee or IRA owner’s death. The end-result is that most
beneficiaries would end up with a “10-year payout rule.” The Senate Bill has a similar rule,
but it requires a five-year distribution.
The Act’s primary goal
In most instances,
the beneficiary
is younger than
the owner, so the
required minimum
distribution is based
on the beneficiary’s
life expectancy.
For a number of years, some Congressional staffers have complained that IRAs have
become wealth transfer vehicles, rather than retirement vehicles. Various plans, such
as limiting the size of IRAs, have been discussed as a way of preventing this perceived
abuse. By limiting the payout period of an “inherited IRA,” the Act intends to do away
with the abuse.
The value of an inherited IRA
IRS Publication 590-B establishes the basic rule for a beneficiary who inherits an IRA
from a deceased owner who has started to receive distributions. It states: “If the owner
died on or after his or her required beginning date (defined earlier), and you are the
designated beneficiary, you must base required minimum distributions for years after
the year of the owner’s death on the longer of either your single life expectancy; or the
owner’s life expectancy.
2019