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What is the SECURE Act and would it affect me?

The SECURE Act is a bill that addresses retirement savings for Americans.  It has gained some traction in Congress recently due to its bipartisan support. While the SECURE Act has passed the House Means and Ways Committee, it has not been voted into law. There have been similar proposals in the past that were never signed into law, but due to the widespread support of a bill that was introduced in a divided Congress, it’s worth keeping up-to-date on what it entails.

SECURE stands for Setting Every Community Up for Retirement Enhancement and the bill proposes actions that would encourage individuals to save for retirement as well as a revenue-saving provision to help pay for these actions. These are some key aspects of the SECURE Act:

– Contributions to Traditional IRAs would be allowed after age 70 ½

– Required Minimum Distributions (RMDs) from retirement accounts wouldn’t begin until age 72 (currently age 70 ½)

– Easier access to annuities and lifetime income options in employer-sponsored retirement plans as well as better portability of these options between employer-sponsored plans and IRAs

– Would require employers to allow certain long-term part-time employees to participate in their 401(k)

– Up to $10,000 of 529 plan dollars could be used to pay off student loans (including those for siblings)

– Small businesses could create multi-employer retirement plans more easily

– Automatic deferrals could escalate to 15% of employee pay (previously 10%) in automatic enrollment safe harbor plans

To help pay for these provisions, the SECURE Act proposes an end to what some call the Stretch IRA.  Currently, non-spouse beneficiaries of an IRA can take RMDs out over their lifetime, stretching the IRA’s tax-deferred status over a potentially long period of time.

The SECURE Act proposes to end this lifetime stretch by requiring beneficiaries to distribute the entire IRA over a 10-year period following the original owner’s death, resulting in more taxes paid in a shorter period of time. Exceptions would be made for surviving spouses, disabled or chronically ill individuals, individuals who are not more than 10 years younger than the original owner, and any minor children of the original owner. This provision would drastically decrease the period of time that IRAs enjoy tax-deferred status.

As mentioned, similar provisions have been introduced in previous years with bipartisan support and they have not come to pass. America is facing a retirement savings crisis, but it is yet to be determined if the SECURE Act or any other previously proposed legislation will be Congress’s response to this crisis.

Speak to your Hefren-Tillotson advisor if you have any further questions about how this, or any legislative changes could affect you.

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