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Expert Report: The SECURE Act

Expert Report: The SECURE Act

Retirement Legislation

The House of Representatives in the US Congress just passed the SECURE Act, which stands for “Setting Every Community Up for Retirement Enhancement.”

It could very well mean big changes to ways you plan and save for retirement, especially when it comes to IRAs and 401ks.

Individual Retirement Accounts (IRAs) are a way to defer taxes to save for the future. However, Tax deferred means you have not yet paid taxes on this retirement money. At 70½ the IRS mandates that you take a Required Minimum Distribution (RMD) and at the time of that distribution, the IRA owner will pay taxes at the current income tax bracket until the account is fully withdrawn.

For anyone who’s concerned about RMDs, the SECURE Act contains a provision that raises the age for RMDs from 70 ½ to 72. This means that you can put off taking RMDs while still making contributions to your IRA until your 72nd birthday.

While this aspect of the SECURE Act’s content looks good for retirees, there’s always a catch or a flipside.

Any inherited IRA would have to be completely withdrawn within a 10-year period. Currently, inherited IRAs can be “stretched” over your heir’s life expectancy opposed to yours. Adding this accelerated RMD schedule to your heir’s income may push them into a higher tax bracket – creating a burden instead of an asset you intended for your beneficiary.

What is so suspicious about this proposal is employers would be allowed to offer certain types of annuities in their 401K plans. At this point, there have been no specifics given on what exact types of annuities, other than they would be used to provide a steady stream of income throughout retirement.

I suspect and believe this proposal could lead to a money grab by the federal government where they take over your retirement accounts, replace them with a guaranteed income stream and call it an annuity.

The SECURE Act has strong support from both parties, so it’s only a matter of time before some version of it will become law. And we find out if it really will be setting every community up for retirement enhancement or setting the federal government up for retirement enhancement.

Now would be a good time to speak with a retirement phase expert who can successfully guide your retirement nest egg through these expected legislative changes and protect it from such a power grab.


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