Four ways the SECURE Act may impact you.

There is a bill working its way through Congress that could impact every retirement saver and, potentially, their heirs. The Setting Every Community Up for Retirement Enhancement (SECURE) Act has four important provisions that you should be aware of:

It increases the Required Minimum Distribution (RMD) age: Currently, everyone must begin to withdraw from their IRA or 401(k) in the calendar year they turn age of 70 ½. (There are narrow exceptions where 401(k)s are concerned.) In response to people both working and living longer, this bill would push the RMD age back to 72. There’s no indication as of yet any changes will be made to the mortality tables that dictate how much to withdraw each year.

It removes the age limit on IRA contributions: While there is no age limit on contributing to a Roth IRA provided you have earned income, you cannot contribute to a Traditional IRA after age 70 ½. This bill would remove that limit, allowing you to contribute as long as you have earned income.

It also removes the “Stretch IRA” provision: This is probably the most controversial part of the bill. When someone inherits an IRA they must take Required Minimum Distributions each year and the amount they must withdraw can be based on their life expectancy. The younger the heir, the smaller the distribution and the smaller the tax bill. The SECURE Act would force IRA beneficiaries to withdraw the entire balance within 10 years, dramatically increasing the amount of taxation, though there are exceptions for spouses and minor children. In the case an heir is a minor (the definition of “minor” is based on state law and could be 18 or 21) they will be eligible for smaller withdrawals until they become a legal adult, at which time the 10-year rule would go into effect.

It allows small businesses to band together to create 401(k) plans: An obstacle for small businesses in setting up 401(k) plans is the cost, which can exceed $5,000 in upfront expenses and annual costs that run $2,000-3,000, a significant amount for many small businesses. The bill would allow multiple business to come together to create a 401(k), making them much more affordable. Additionally, part-time workers, typically ineligible to contribute to a 401(k), would become eligible after 3 consecutive years of 500 hours worked.

There are other provisions like the ability to withdraw up to $10,000 from a 529 account to repay student loans or $5,000 from an IRA/401(k) to help with expenses associated with adoption or the birth of a child, and increasing the availability of annuities in 401(k) plans, but the four listed above will have the broadest impact.

The bill has passed the House and is making its way through the Senate, where a similar bill called the Retirement Security and Enhancement Act also resides. There is no timetable for when a final bill will be completed, but there is urgency to have things done by the end of the year.

Of course, we will keep you posted as things progress and will provide a more in-depth review if the bill passes and is signed into law.

Ryan Smith
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Born and raised on the North Shore of Massachusetts, I moved to Raleigh in 2011 to marry my wife, Emily. We have two kids, Jack and Gwen, a golden retriever named Olly, and are members of Church of the Apostles. I have been a Financial Advisor since 2005 and earned a Master’s of Science in Financial Planning from Bentley University in 2007. I became a CFP® professional in 2009, a Retirement Income Certified Professional® in 2015, and a Certified Tax Specialist™ in 2023.