By Robert DeHollander
Never one to let a good acronym to to waste, Congress passed the Setting Every Community Up
for Retirement Act (or the “SECURE Act”) in December. I have mixed feelings about the new
law. It makes big changes to employer retirement plans and IRAs. The new law provides some
savings benefits – but at a cost. Whether you’re a business owner or a plan participant, here are a
few key changes to understand.
1. Bye Bye Stretch IRA: Previously, if you inherited an IRA from someone other than your
spouse, you could usually “stretch” out those payments over your expected lifetime. Now,
most non-spouse beneficiaries must take the money out of the inherited IRA within 10 years
after the year of the death. Certain beneficiaries, including spouses and minor children, are
exempt from this rule. This also makes some trusts that were written to take advantage of the
lifetime stretch less attractive. This can have big implications for a younger, non-spouse
beneficiary (i.e. a 40-year old child). Since these accounts must now be liquidated and taxed
over a ten year period while the beneficiary is likely still working, it means their inheritance
will be taxed at a higher rate and they’ll forfeit the tax benefits of the inherited-IRA.
Idea 1: If you inherit a traditional IRA, plan ahead to minimize the tax bill. Think about the
timing of your distributions over the 10 year window. You may receive it at once (perhaps
during a year in which you’re not working) or stagger the distributions. Carefully manage
your tax liability each year.
Idea 2: If you’re the owner of a traditional IRA, consider proactively converting some
traditional IRA dollars to a Roth IRA. Remember that Roth conversions are taxable as
ordinary income in the year converted. However, if you like the idea of lowering both your
required minimum distributions and reducing taxes for your beneficiaries, the Roth IRA
conversion may make sense.
2. Required Minimum Distributions delayed to Age 72: Previously, required minimum
distributions (RMDs) from most retirement accounts had to begin during the year in
which you turned age 70½. The age is now 72. Note that if you turned 70½ in 2019 or
earlier, you’re still required to take your RMD under the old rules.
Idea: Review your retirement income needs and the impact on your beneficiaries. If you
have enough savings or sufficient Social Security income and you don’t need to draw
from your retirement accounts, consider delaying retirement plan distributions until 72.
On the other hand, if you’re concerned about creating a larger tax liability, you may want
to consider taking distributions sooner or converting some of these dollars to a Roth IRA.
Know your unique situation and goals.
3. Saving Past Age 70 ½ : The new law eliminates the age limit (previously 70 ½) to
contribute to a traditional IRA. Starting January 1, 2020, the SECURE Act allows a
working individual over 70 ½ to make contributions to a traditional IRA as long as they
have earned income (subject to maximum income limits).
Idea: If you’re behind on your savings and still working, take advantage of the new age
limits. Also, remember to update the numbers in your financial plan.
Final Thoughts: The SECURE Act of 2019 is a complex patchwork of retirement plan
initiatives and this article is by no means comprehensive. Although not as sweeping as the Tax
Cuts and Jobs Act of 2017, the SECURE Act changes the rules around retirement plans in an
effort to increase “retirement readiness” of Americans but it comes at a cost, particularly for non-
spouse beneficiaries. As with any new tax legislation, it’s written in “pencil” so there are likely
to be changes as the new law is implemented. Consult your tax or financial advisor and update
your retirement and estate plan to incorporate changes due to the SECURE Act.
Robert DeHollander, CFP® is a Managing Partner and Co-Founder of the DeHollander & Janse Financial Group located at
3515 Pelham Road, Suite 100,
Greenville, SC, 29615. Ph: 864-770-0220
Securities and advisory services offered through Commonwealth Financial Network®, member
FINRA/SIPC, a Registered Investment Adviser.