– by Murray Sawyer, JD, President and CEO
Who says cats and mice can’t play nicely together?
On Thursday, May 23rd, the House of Representatives by near unanimity passed a significant retirement bill. The vote was 417 to 3. Its acronym is SECURE, which is short for Setting Every Community Up for Retirement Enhancement. It’s a Big Deal and augurs the biggest changes to retirement plans in a decade.
I have no doubt the cats and mice in the Senate will play nice too. In fact, I’ll go so far as to predict that this legislation will be passed as fast as a Mercedes AMG S63 on the Bonneville Salt Flats. Or as fast at Sunday’s Indy 500 winner can race around the Indianapolis Motor Speedway. In this era of Pelosi/Schumer v. Trump, both houses are desperate to have some legislative success to point the voter to, don’t you think?
Key Components of the SECURE Act
There’s a whole bunch of fluff in the Act designed to help small business employees, home care workers, long-term part-time workers, and benefit annuity-issuing insurance companies which I’ll ignore, but to cut to the chase. The three main takeaways are these:
1. The biggest takeaway is this one. The ability to provide a significant benefit to your children through a so-called “Stretch IRA” is greatly limited. Today, children-beneficiaries can take withdrawals over their lifetimes. With the passage of this legislation, if you are an adult child who inherits an IRA, you must take withdrawals over a ten-year period. (And as an incidental result, this is projected to generate $16 billion for the U.S. Treasury which it would not have otherwise enjoyed. Why am I not surprised?)
2. You may make contributions to IRAs at any age, even after you turn 70.5. The point here is that you could continue to make contributions to IRAs for your entire lifetime.
3. The RMD clock, the mandatory time when you need to start taking withdrawals from traditional IRAs, is pushed back from 70.5 years of age to 72. I never knew what the magic of 70.5 was anyway, so this is good, so long as you can afford to wait.
How the Legislation Might Affect You
The main planning point to come out of this legislation is our general recommendation that clients strongly consider the possibility of using Roth conversions with respect to existing IRAs, or parts thereof.
Remember, the window for Roth conversions at a favorable tax rate is time limited. Personal income tax rates will soon enough go back up come 2026, when the lower income tax rates and brackets of the 2017 Tax Act are scheduled to sunset. Today, a step-by-step, year-over-year conversion may make sense for you because then your children would not be limited by this 10-year rule, and also because they would enjoy their Roth IRA inheritance tax-free, with you having paid the taxes at the time(s) of conversion.
Every individual’s circumstances are different, so this recommendation will not apply to all, but please reach out to us if you would like us to discuss your particular circumstances.
And enjoy this glorious Memorial Day weekend. Ladies and gentlemen start your engines!
Keep the faith.