According to the Federal Reserve System, one-quarter of non-retired adults have no retirement savings or pension, and of those who do, only 36% percent feel that their retirement savings is on track.1 As a result, Congress has been working for the past several years on ways to encourage retirement savings. The result is the Setting Every Community Up for Retirement (SECURE) Act, which was signed into law by President Trump at the end of 2019. The SECURE Act intends to improve America’s current retirement savings policy by implementing new rules to encourage more citizens to either begin saving for retirement or bolster an already established retirement plan. Key methods include:

  • Incentivizing small business owners to establish plans for their employees
  • Allowing long-serving part-time employees to participate in their employer’s retirement programs
  • Increasing the Required Minimum Distribution (RMD) age to allow for extended tax-deferred asset growth
  • Increasing the beginning traditional IRA required distribution age from 70½ to 72
  • Repealing the maximum traditional IRA contribution age, currently set at 70½
  • Increasing the tax credit for small employer plans and the auto-enrollment safe harbor
  • Allowing penalty-free withdrawals from retirement plans in the year of a birth or adoption for qualified expenses
  • Easing the rules restricting Multiple Employer Plans (MEPs), which will allow unrelated employers to join a pooled employer plan
  • Expanding 529 Plan education savings accounts to cover costs associated with registered apprenticeships, private elementary schools, private secondary schools, religious schools, and up to $10,000 for qualified student loan repayments

Penalties for Wealthy Investors

This is all great news for opening more opportunities for savings. However, this may penalize wealthy investors who have been planning to use the tax-advantaged “stretch” IRA strategy to defer taxes to inheritors by using the beneficiary’s life span to stretch-out the RMDs after the participant’s death. Under the SECURE Act, except for distributions to a surviving spouse or certain other limited situations2, IRA distributions must now be distributed in full to the beneficiaries of the account by the end of the tenth (10th) calendar year following the IRA owner’s death. This does not apply to current inherited IRA beneficiaries who are already receiving RMDs.

1 Report on Economic Well-Being of US Households in 2018, Board of Governors of the Federal Reserve System, March 2019: https.//www.federalreserve.gov/publications/files/2018-report-econimic-well-being-us-households-201905.pdf
2 The Setting Every Community Up For Retirement Enhancement Act of 2019 (The SECURE Act), House Committee on Ways and Means, April, 2019: