Who says cats and mice can’t play nicely together?
The US House of Representatives by rare, near unanimity, recently 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 20 years.
Senate Finance Committee Chairman Charles Grassley said just this past week that advancing the bill through the Senate is a top priority.
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. 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, so let me cut to the chase. The three main takeaways are these:
- The SECURE Act eliminates the so-called “Stretch IRA.” Today, children and non-spousal beneficiaries can take their required withdrawals out over their lifetimes. With the passage of this legislation, if you are an adult child who inherits an IRA, you must withdrawal the entire account within ten years. (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?)
- 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.
- The Required Minimum Distribution 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
Should this legislation become law, the main planning point reinforces 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.
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.