Proposed Retirement Savings Bill (SECURE Act) Explained

On May, 23, 2019 the House approved the “Setting Every Community Up for Retirement Enhancement Act” (SECURE Act), and the Senate is expected to also approve the bill this summer. If passed, this bill will put in place some of the biggest changes to retirement plans in America in over a decade. While we anticipate the Senate’s vote, we thought it would be helpful to outline the proposed changes that will be implemented should it pass.

Proposed Changes:

  • Increase the age for Required Minimum Distributions (RMD) from age 70 ½ to age 72.

  • Permit contributions to retirement accounts to continue past the age of 70 ½.

  • Allow part-time workers to be eligible for the employer plan if they have worked at least 500 hours in the 3 years prior.

  • Opportunity to withdraw up to $5,000, penalty-free, for birth or adoption expenses.

  • Enforce that retirement account statements include an illustration that shows what monthly retirement payments would be to last the participant’s lifetime based on the current balance.

  • Inherited retirement accounts must be distributed within a decade and taxes must be paid accordingly.

Why is this important?

With life expectancy increasing, the new RMD age in the bill will allow for a better opportunity to ensure retirement savings last for the duration of account owners’ lifetimes. Additionally, with people living longer, we are also working longer, so the ability to continue contributing to retirement accounts past the age of 70 ½ will allow for continued tax-deferred growth.

The provision that retirement plans will need to provide monthly payment numbers on the statement will also be helpful for a participant’s retirement outlook. Through financial planning, we can assist with this outlook as well, by reviewing your accounts and income sources (retirement, taxable accounts, future income, and social security benefits) for retirement to provide you with a monthly or annual distribution amount that you will be able to sustain throughout your retirement.

The ability for part-time workers to contribute to an employer plan will open up more opportunities for those that need to be home part-time for child-care, elder-care, or other reasons, but have still put in substantial time at their employers.

Generally, the changes fall in the taxpayer’s favor. The final change listed above is the exception. Today, if you inherit a retirement account you can disburse the inherited account over your lifetime. If the new bill passes, the account would have to be liquidated within 10 years, and thus paying taxes on those liquidations in those 10 years as well. This is the House’s solution to pay for the proposed changes.

With a nearly unanimous vote in the House (417-3), the Senate is also expected to pass the bill. They have already forgone their similar version of the bill (called Retirement Enhancement and Savings Act or “RESA”), and decided to adopt the SECURE Act to be voted on soon.