What Is the SECURE Act?

Key Points – What Is the SECURE Act?

Setting Every Community Up for Retirement
Why Ed Slott Says to Hold on to Your Wallets
The SECURE Act and the SECURE Act 2.0
Changes to Required Minimum Distributions
How the Game Has Changed with Inherited IRAs
4 Minutes to Read

Understanding the SECURE Act

So many things changed on the retirement planning front when the SECURE Act was signed into law in 2019.₁ And so many things related to the SECURE Act have changed since then, including SECURE 2.0 being signed into law in 2022.₂ Let’s review what the SECURE Act is and how it has impacted retirement planning.

What Does the SECURE Act Stand for?

The SECURE in the SECURE Act stands for Setting Every Community Up for Retirement Enhancement. It had overwhelming bipartisan support, passing 297-120 in the House₃ and 71-23 in the Senate.₄ The SECURE Act was intended to make it easier for more Americans to save for retirement.₅ But if you’ve recently retired or are planning for retirement, how secure does the SECURE Act make you feel?

Our good friend and America’s IRA expert, Ed Slott, CPA, says that whenever you hear about a tax bill that has a title like the SECURE Act, it’s time to “hold on to your wallet.” He believes that Congress wants your money as soon as possible, and the SECURE Act can help them with that thanks to the rules surrounding IRAs that it implemented. More on that momentarily, as we review some key provisions of the SECURE Act.

Keeping Up with the Latest Changes for Required Minimum Distributions

One of the main provisions of the SECURE Act was raising the age that individuals must begin taking minimum distributions from their retirement accounts from 70½ to 72. The RMD age changed again to 73 in January 2023 when SECURE 2.0 went into effect, and is set to increase to 75 in 2033. These changes give retirement account owners more time to grow until they are required to take distributions.

Removal of Age-Related Cap on Contributing to IRAs

Prior to the SECURE Act, IRA owners weren’t allowed to contribute to their accounts after they turned 70½. That maximum age limit was lifted when the SECURE Act became law.

Removal of the Stretch IRA

With those two provisions giving IRA owners more time to grow their retirement accounts, why is Ed Slott saying to hold on to your wallets? Ed is alluding to the removal of the Stretch IRA, which had allowed IRA owners to transfer funds from their accounts to their non-spousal beneficiaries in a tax-deferred manner over their lifetime.

Once the SECURE Act went into effect, non-spousal beneficiaries were required to withdrawal funds from inherited IRAs and Roth IRAs within a 10-year period following the year of the original account owner’s death.

So, why would Congress do that and take away what was a very popular estate planning strategy that made it much easier to build generational wealth? Well, according to the Joint Committee on Taxation, the repealing of the Stretch IRA was projected to increase the Congressional Budget Office’s revenue by $15.7 billion over the next 10 years.₆ That’s why Ed Slott said to hold on to your wallets.

The Three Types of Beneficiaries

There are a few exceptions to the 10-year rule, though. Those exceptions are deemed as eligible designated beneficiaries, which are one of three types of beneficiaries outlined in the SECURE Act. Let’s review them.

Non-designated beneficiaries are non-qualified trusts, charities, or estates.
Eligible designated beneficiaries include surviving spouses, disabled individuals under strict IRS rules, minor children under 21 but no grandchildren, individuals who aren’t more than 10 years younger than the IRA owner, and chronically ill individuals.
A non-eligible beneficiary is outlined by the IRS as a designated beneficiary who doesn’t qualify as an eligible designated beneficiary.

If you’re having a hard time making sense of the 10-year rule, the beneficiary designations, or anything regarding inherited IRA rules, it’s OK. You’re not alone. It’s one of many reasons why DIY retirement planning can go wrong and why working with a team of professionals is critical. To learn more about key estate planning considerations, download our Estate Planning Guide below.

Estate Planning Guide

Annuity Options in 401(k)s

Another provision within the SECURE Act made it easier to add annuity investment options to 401(k) plans. There may be nothing inherently bad with annuities. However, they often come with greater cost and complexity than your typical mutual fund investments.

A Lot Changed with the SECURE Act … and a Lot Has Changed Since It Was Passed

Whether it’s been granting easier access to Multiple Employer Plans for small businesses, allowing part-time workers who have worked 500-plus hours for three straight years to participate in their company’s 401(k) plan, or penalty-free withdrawals of $5,000 or less for birth or adoption expenses, there were wide range of other provisions within the SECURE Act.₇ But keep in mind that laws and regulations can change. And in this case, they have already changed following the SECURE Act 2.0 and other provisions.

Feel More Secure with a Financial Planning Team

Keeping up with all the changes and legislation is no small task. Rather than trying to do so and potentially misinterpreting this very complex subject matter, it’s advisable to consult with financial professionals for the most up-to-date information on retirement planning.

Notice that we said professionals (plural), not professional (singular). As we mentioned throughout this article, the SECURE Act made drastic changes regarding taxes, estate planning, investments, and retirement planning. At Modern Wealth, we have a team of professionals that consists of CFP® Professionals, CPAs, CFAs, estate planning specialists, and risk management specialists so that all the financial planning pillars are covered.

Our team of professionals works together on behalf of our clients to give them more confidence that they’re doing the right things with their money, freedom from financial stress, and time to spend doing the things they love. To learn more about how our can work together on your behalf to help you build a personalized financial plan and understand complex legislation such as the SECURE Act, start a conversation with our team below.

Schedule a Meeting

There’s a lot that goes into answering, “What is the SECURE Act?” Having a team of professionals that’s working for you is critical to getting an accurate and comprehensive understanding of what it is. Our team is ready to go to work for you.

Resources Mentioned in This Article

Downloads

Estate Planning Guide

Other Sources

[1] https://www.congress.gov/116/plaws/publ94/PLAW-116publ94.pdf#page=605

[2] https://www.irs.gov/pub/irs-drop/n-23-43.pdf

[3] https://www.investmentnews.com/industry-news/news/advisers-weigh-in-on-secure-act-approved-by-house-and-on-way-to-senate-and-the-white-house-175656

[4] https://www.thinkadvisor.com/2019/12/19/senate-passes-secure-act-with-year-end-spending-bill/

[5] https://www.kiplinger.com/article/retirement/t037-c032-s014-secure-act-basics-what-everyone-should-know.html

[6] https://www.cbo.gov/system/files/2019-04/hr1994.pdf

[7] https://www.napa-net.org/news-info/daily-news/key-secure-act-provisions-and-effective-dates

Investment advisory services offered through Modern Wealth Management, LLC, an SEC Registered Investment Adviser.

The views expressed represent the opinion of Modern Wealth Management an SEC Registered Investment Adviser. Information provided is for illustrative purposes only and does not constitute investment, tax, or legal advice. Modern Wealth Management does not accept any liability for the use of the information discussed. Consult with a qualified financial, legal, or tax professional prior to taking any action.