The SECURE Act part 2: RMD's & Stretch IRA's
The SECURE (setting every community up for retirement enhancement act of 2019) Act was approved by the Senate on December 19th and signed into law on December 20th. During our last installment, we discussed the portions focused on plan creation. During this segment, we will cover those items that effect plan utilization.
The most talked about portion of the SECURE Act is the increase in the required minimum distribution (RMD) age from 70 ? to 72. Since the SECURE Act was signed into law late in the year, there wasn’t a lot of discussion around how provisions would be implemented. The long and short of it is if you were born prior to June 30th, 1949 then nothing changes for you. You are under the old schedule of RMD’s. If you were born on July 1st of 1949 or later, you are celebrating as you get an extra 1.5 years until you have to take money out of your retirement accounts.
As Americans age and work longer, it only makes sense that RMD ages should increase. Unfortunately, this increase means a loss of revenue for the government as money won’t be as quick to move out of these plans. If you are still working at age 73, 77, 82…and don’t own more than 5% of the company you work at, then you can still delay RMD’s as well. To pay for this provision, the Act changes the ability of a non-spouse beneficiary to stretch the distributions from an inherited IRA over the course of their lifetime. They will now need to have this money removed within ten years of the date of death of the original account holder.
There are some exceptions to this rule so if a minor inherits an IRA then they get until they turn 18 and then 10 years to remove the money. Also someone who is disabled could stretch the IRA over their lifetime. These two items will probably be the most talked about of all. Legislators also wanted to increase the options that participants have to annuitize assets once they have accumulated them during their working years.
There has been very little movement in in-plan annuities and we don’t anticipate these new incentives to increase that number. The incentives were to clean up the process committees must follow to not incur undo liability when selecting and monitoring a provider. As always, an employee could take their accumulated assets and purchase an annuity outside of the plan if that is what they were interested in. It is our opinion that the reasons why employees don’t annuitize assets has little to do with the availability of these options but the restrictions and costs associated with them. While the legislation cleans up one aspect of this, it does little to simplify the portability issues that would occur if a recordkeeper were to change.
It is our belief that in-plan annuities will continue to be offered by a small number of plan sponsors and even a smaller number of participants will take them up on these options. The RMD change and the stretch IRA change are the two items that will really force employees to revisit any retirement plans they may have drafted to see if any adjustments need to be made.