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OK, kids are finally asleep, so it's time to nerd out on the SECURE Act for a little bit (i.e. the next few hours). Buckle up...
Let's start w/ the big news... the 'Death' of the 'Stretch'. In fairness, it isn't dying a complete death...
OK, kids are finally asleep, so it's time to nerd out on the SECURE Act for a little bit (i.e. the next few hours). Buckle up...
Let's start w/ the big news... the 'Death' of the 'Stretch'. In fairness, it isn't dying a complete death...
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It's just that MUCH fewer people will qualify to be able to stretch distributions. Instead, most new (more on this in a bit) designated beneficiaries will have to empty inherited retirement accounts by the end of the 10th year following the year of death.
It's just that MUCH fewer people will qualify to be able to stretch distributions. Instead, most new (more on this in a bit) designated beneficiaries will have to empty inherited retirement accounts by the end of the 10th year following the year of death.
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Notably, there will be no required minimum distributions during the first 9 years. Rather, whatever is left in the account just has to be emptied by the end of 10th year. This will be of help to a small number of beneficiaries, but hurts those who wanted to stretch.
Notably, there will be no required minimum distributions during the first 9 years. Rather, whatever is left in the account just has to be emptied by the end of 10th year. This will be of help to a small number of beneficiaries, but hurts those who wanted to stretch.
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There are 5 situations where the 10-year rule won't apply to a designated beneficiary. Members of this group are called "ELIGIBLE BENEFICIARIES". EBs are:
1) Surviving spouse
2) Disabled
3) Chronically ill
4) Not more than 10 years younger than owner
5) Minor children
There are 5 situations where the 10-year rule won't apply to a designated beneficiary. Members of this group are called "ELIGIBLE BENEFICIARIES". EBs are:
1) Surviving spouse
2) Disabled
3) Chronically ill
4) Not more than 10 years younger than owner
5) Minor children
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These rules "only" apply to beneficiaries who inherit AFTER 2019.
The good news is that existing beneficiaries can still stretch.
The bad news is WE HAVE JUST 2 WEEKS TO PLAN FOR MAJOR CHANGES for many future benes.
Some exceptions to the 2020 effective date apply...
These rules "only" apply to beneficiaries who inherit AFTER 2019.
The good news is that existing beneficiaries can still stretch.
The bad news is WE HAVE JUST 2 WEEKS TO PLAN FOR MAJOR CHANGES for many future benes.
Some exceptions to the 2020 effective date apply...
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The effective date of this change is NOT 2020 for certain:
- Collectively bargained plans
- Governmental plans (including the TSP, which Congresspersons participate in... nice, huh?)
-Certain qualified annuities already annuitized over life/joint life
The effective date of this change is NOT 2020 for certain:
- Collectively bargained plans
- Governmental plans (including the TSP, which Congresspersons participate in... nice, huh?)
-Certain qualified annuities already annuitized over life/joint life
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Now that we're all sufficiently depressed, let's switch gears to some things that are more positive for retirement account owners, starting with the change in RMD age.
SECURE Act will push back the RMD age to 72.
Now that we're all sufficiently depressed, let's switch gears to some things that are more positive for retirement account owners, starting with the change in RMD age.
SECURE Act will push back the RMD age to 72.
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Biggest benefit here may simply be that people actually understand when they turn 72 years of age. So knowing when RMDs start is about to get easier.
Of course, we'll still have to deal w/ age 59 1/2, so for those already feeling nostalgic about half Bdays, there's that.
Biggest benefit here may simply be that people actually understand when they turn 72 years of age. So knowing when RMDs start is about to get easier.
Of course, we'll still have to deal w/ age 59 1/2, so for those already feeling nostalgic about half Bdays, there's that.
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The other big benefit for some is a little bit longer "gap" period.
And interestingly, in this regard, the changes made by the SECURE Act favor those w/ 1st half of year Bdays forbes.com/sites/jeffreyl…
The other big benefit for some is a little bit longer "gap" period.
And interestingly, in this regard, the changes made by the SECURE Act favor those w/ 1st half of year Bdays forbes.com/sites/jeffreyl…
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This change is effective beginning next year!
Interestingly, as I read the law, someone who turned 70 1/2 last year could actually have 2 Required Beginning Dates; one on April 1 this year, and the other on April 1 of the year following the year they turn 72!?
🤯🤯🤯...
This change is effective beginning next year!
Interestingly, as I read the law, someone who turned 70 1/2 last year could actually have 2 Required Beginning Dates; one on April 1 this year, and the other on April 1 of the year following the year they turn 72!?
🤯🤯🤯...
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OK, now something else that's kinda nice...
Section 107 of SECURE repeals maximum age for making a Traditional IRA contribution.
This makes a ton of sense b/c:
- More people are working past 70 (it's about 30%)
- The TIRA is the ONLY retirment acct w/ such a restriction
OK, now something else that's kinda nice...
Section 107 of SECURE repeals maximum age for making a Traditional IRA contribution.
This makes a ton of sense b/c:
- More people are working past 70 (it's about 30%)
- The TIRA is the ONLY retirment acct w/ such a restriction
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Interesting to note that there is an anti-abuse provision to reduce QCDs by the amount of the TIRA deduction you receive in post 70 1/2 years.
On that note... even though RMDs will now start when you're 72, it appears that 70 1/2 is still the key age for RMDs.
Interesting to note that there is an anti-abuse provision to reduce QCDs by the amount of the TIRA deduction you receive in post 70 1/2 years.
On that note... even though RMDs will now start when you're 72, it appears that 70 1/2 is still the key age for RMDs.
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Ok, let's switch gears up and talk about the very first Section of SECURE, which deals w/ MEPs. Many advisors are not super-familiar w/ them, but if you're not, you should do yourself a favor and do it QUICK. They're about to get a lot more popular.
Ok, let's switch gears up and talk about the very first Section of SECURE, which deals w/ MEPs. Many advisors are not super-familiar w/ them, but if you're not, you should do yourself a favor and do it QUICK. They're about to get a lot more popular.
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MEPS (multiple employer plans) are plans that pool together multiple businesses into one plan.
The primary reason you haven't probably seen them much is bc the IRS has long had a "One Bad Apple" rule, which was a giant PIA kitces.com/blog/mep-multi…
MEPS (multiple employer plans) are plans that pool together multiple businesses into one plan.
The primary reason you haven't probably seen them much is bc the IRS has long had a "One Bad Apple" rule, which was a giant PIA kitces.com/blog/mep-multi…
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Basically, the One Bad Apple rule essentially said that, if ANY company broke the rules, that the ENTIRE plan would be fuc... disqualified.
Who would want to take on that risk? NO ONE... which is why they never really caught on. SECURE Act gets rid of this 💩tacular rule.
Basically, the One Bad Apple rule essentially said that, if ANY company broke the rules, that the ENTIRE plan would be fuc... disqualified.
Who would want to take on that risk? NO ONE... which is why they never really caught on. SECURE Act gets rid of this 💩tacular rule.
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Just as notable is the SECURE Act's elimination of the nexus requirement (which was already loosed earlier this year via regulation).
Now, however, we're going to have truly open MEPs. And THIS is where it can get SUPER-cool for advisors...
Just as notable is the SECURE Act's elimination of the nexus requirement (which was already loosed earlier this year via regulation).
Now, however, we're going to have truly open MEPs. And THIS is where it can get SUPER-cool for advisors...
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Imagine building your own super-tricked-out, low-cost, bad-ass 401(k) that you can offer to any biz you work w/ (or that wants to work w/ you).
You can have 1 big MEP for everyone! Streamlines things for advisors, which SHOULD lead to cost efficiencies for end-clients.
Imagine building your own super-tricked-out, low-cost, bad-ass 401(k) that you can offer to any biz you work w/ (or that wants to work w/ you).
You can have 1 big MEP for everyone! Streamlines things for advisors, which SHOULD lead to cost efficiencies for end-clients.
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For those wondering... we're a LONG way from "done" here...
Section 113 of SECURE adds a new exception to the 10% penalty for childbirth/adoption.
Oddly enough, this is actually one of the longer Sections in the SECURE Act
Easy part = exception is up to a maximum of $5k
For those wondering... we're a LONG way from "done" here...
Section 113 of SECURE adds a new exception to the 10% penalty for childbirth/adoption.
Oddly enough, this is actually one of the longer Sections in the SECURE Act
Easy part = exception is up to a maximum of $5k
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Now details...
The $5k can't be taken before child is born (even if it's for costs related to planned birth or adoption)
Sad thought... don't see anything about requirement for "life", but think its implicit?
UPDATE: Need kid's TIN... so stillborn children won't qualify☹️
Now details...
The $5k can't be taken before child is born (even if it's for costs related to planned birth or adoption)
Sad thought... don't see anything about requirement for "life", but think its implicit?
UPDATE: Need kid's TIN... so stillborn children won't qualify☹️
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Also, not skirting the rules by adopting adults. Adoptees must be <18 for the distribution to qualify.
Importantly, this exception would apply to BOTH plans and IRAs.
These distributions would be exempt from mandatory 20% withholding (plans)
Also, not skirting the rules by adopting adults. Adoptees must be <18 for the distribution to qualify.
Importantly, this exception would apply to BOTH plans and IRAs.
These distributions would be exempt from mandatory 20% withholding (plans)
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There is also an option to repay these amounts. I'm not totally clear on the timeframe here.
If you have thoughts, I'd love to hear them.
Last thoughts:
- Looks like each parent can use the $5k exception
- Becomes 2nd exception w/ hard dollar max (1st-time homebuyer)
There is also an option to repay these amounts. I'm not totally clear on the timeframe here.
If you have thoughts, I'd love to hear them.
Last thoughts:
- Looks like each parent can use the $5k exception
- Becomes 2nd exception w/ hard dollar max (1st-time homebuyer)
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There's also a lot of stuff in SECURE designed to increase employer adoption of retirement plans. Frankly, it's a good start, but we probably need even more.
Employer plans are a great (prob the best) way to get people to save for their retirement. New benefits include...
There's also a lot of stuff in SECURE designed to increase employer adoption of retirement plans. Frankly, it's a good start, but we probably need even more.
Employer plans are a great (prob the best) way to get people to save for their retirement. New benefits include...
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- Credit of up to $5k for starting a small employer plan for up to 3 years👍
- Additional credit of up to $500 for adding auto-enrollment (proven to increase plan adoption!)
- New rules requiring long-time part-timers more access to plans
- Credit of up to $5k for starting a small employer plan for up to 3 years👍
- Additional credit of up to $500 for adding auto-enrollment (proven to increase plan adoption!)
- New rules requiring long-time part-timers more access to plans
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Now seems like a good time to talk about why this is going to be passed w/ SUCH bipartisan support (hint: it's not b/c retirees wanted to see the "Stretch" squashed).
Like most things, it comes down to $$$. And insurance companies spent a FORTUNE lobbying for this baby.
Now seems like a good time to talk about why this is going to be passed w/ SUCH bipartisan support (hint: it's not b/c retirees wanted to see the "Stretch" squashed).
Like most things, it comes down to $$$. And insurance companies spent a FORTUNE lobbying for this baby.
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Why would they do that? B/c the SECURE Act is really, really kind to annuities (and more appropriately, annuity carriers). 2 big benefits are:
- A portability improvement for annuities. In short, if a plan wants to kick out an annuity purchased by a participant as an...
Why would they do that? B/c the SECURE Act is really, really kind to annuities (and more appropriately, annuity carriers). 2 big benefits are:
- A portability improvement for annuities. In short, if a plan wants to kick out an annuity purchased by a participant as an...
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investment option, it can do so 90 days prior to the date (or after) that the annuity is no longer allowed inside the plan.
Separately (and the real biggie), Section 204 provides a new safe harbor for selecting an annuity provider. So as long as some basis due diligence...
investment option, it can do so 90 days prior to the date (or after) that the annuity is no longer allowed inside the plan.
Separately (and the real biggie), Section 204 provides a new safe harbor for selecting an annuity provider. So as long as some basis due diligence...
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is completed upfront, if the annuity carrier later goes "belly up", the plan Fiduciaries are presumably off the hook.
This risk (now mitigated) has been cited as a major reason why more plans haven't added annuities as options...
is completed upfront, if the annuity carrier later goes "belly up", the plan Fiduciaries are presumably off the hook.
This risk (now mitigated) has been cited as a major reason why more plans haven't added annuities as options...
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Here's the dilemma... Lifetime income annuities (like SPIAs and DIAs) are some of the best tools available to mitigate longevity risk.
But not all annuities are great, and commission-based products have a greater POTENTIAL for abuse (just ask @ATeachMoment). So the...
Here's the dilemma... Lifetime income annuities (like SPIAs and DIAs) are some of the best tools available to mitigate longevity risk.
But not all annuities are great, and commission-based products have a greater POTENTIAL for abuse (just ask @ATeachMoment). So the...
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question is this...
Did we just free-up plan fiduciaries to adopt lifetime income options that could benefit certain plan participants?
Or did we open Pandora's box for insurance companies?
Or both?
question is this...
Did we just free-up plan fiduciaries to adopt lifetime income options that could benefit certain plan participants?
Or did we open Pandora's box for insurance companies?
Or both?
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Lots of other little retirement-related changes, like no more 401(k) 'credit cards' that create loans (there is a special place in 🔥 for whoever thought this one up🤦♂️)
But let's finish up by mentioning the significant changes for 529 plans...
Lots of other little retirement-related changes, like no more 401(k) 'credit cards' that create loans (there is a special place in 🔥 for whoever thought this one up🤦♂️)
But let's finish up by mentioning the significant changes for 529 plans...
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The big change here is that up to $10,000 of 529 plan money can be used to pay off student debt. The $10k is, unfortunately, a lifetime amount, and NOT an annual limit.
But, an additional $10k can be used to pay off student debt for each of the 529 plan bene's siblings!
The big change here is that up to $10,000 of 529 plan money can be used to pay off student debt. The $10k is, unfortunately, a lifetime amount, and NOT an annual limit.
But, an additional $10k can be used to pay off student debt for each of the 529 plan bene's siblings!
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Should go without saying, but no double-dipping. If you use the 529 plan money to pay down student debt interest, you can't deduct that interest as an above-the-line deduction. And finally...
Should go without saying, but no double-dipping. If you use the 529 plan money to pay down student debt interest, you can't deduct that interest as an above-the-line deduction. And finally...
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Apprenticeship programs are added to the list of acceptable "institutions" provided that they are appropriately registered w/ the DOL.
So with that said...
Apprenticeship programs are added to the list of acceptable "institutions" provided that they are appropriately registered w/ the DOL.
So with that said...
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That's it for now. I'm sure over the next few days, weeks, and months we'll all refine our understanding, find new quirks and dial-in planning strategies.
Until then, if you think there's something else important to share, please reply below so others can benefit. Thanks!🙏
That's it for now. I'm sure over the next few days, weeks, and months we'll all refine our understanding, find new quirks and dial-in planning strategies.
Until then, if you think there's something else important to share, please reply below so others can benefit. Thanks!🙏
