Pending Changes to Retirement Account Rules (The SECURE Act)

Retirement, Taxes, Wealth Management September 6, 2019

Pending Changes to Retirement Account Rules (The SECURE Act)

Changes to retirement accounts could be on the way. The House of Representatives voted overwhelmingly to pass the SECURE Act (Setting Every Community Up For Retirement Enhancement), the first big overhaul to retirement rules since 2006. The legislation is currently sitting in the Senate awaiting a vote. We will keep a close eye on the legislation and make you aware of any changes that directly affect you. Here are a few of the notable proposed changes:

Increasing the Retirement Age to 72 from 70 ½

The age cap for contributing to a traditional IRA, currently set at 70 ½, would be repealed. More people are working beyond age 70 either by choice or necessity, so savers can take advantage of tax-deferred accounts for longer to keep up with increasing life expectancies. Similarly, savers would be required to begin taking their required minimum distributions from 401(k)s and traditional IRA accounts at age 72 instead of 70 ½, giving them extra time to grow their money in tax-deferred accounts.

Annuities in 401(k) Plans

Individuals with 401(k) plans would be allowed to buy annuities through insurance companies in exchange for contracts that guarantee a monthly income stream. This is an attempt to offer working Americans a product similar to a pension that many corporations used to offer. Keep in mind that annuities can drastically reduce the growth potential of employees money and eliminate the opportunity to pass excess retirement money to heirs (unless they pay extra). Annual 401(k) statements would also be required to project how much the participants’ current savings would generate over a lifetime of monthly payments.

Inherited IRAs

The ability to “stretch” an inherited IRA would be shortened. Currently, when an IRA is inherited, the non-spousal beneficiary is able to stretch the required distributions and tax payments over their lifetime. Under the new bill, non-spousal beneficiaries would be required to withdraw the full balance of the account within ten years of inheritance, accelerating the income taxes due and reducing growth potential.

New Parents

New parents would be able to withdraw up to $5,000 penalty free from their IRA or 401(k) plan within one year of the birth or adoption of a child to help accommodate additional expenses.

Children with Investment Income

A minor’s interest, dividends and other unearned income is currently taxed at the trusts and estates tax rate. This would be repealed and the “kiddie tax” would return to the parents’ marginal tax bracket.

Employers without Retirement Plans

Employers without retirement plans would have the option to band together to offer 401(k) plans with less fiduciary liability concern and reduced costs.

Part-time Employees

Employers would be required to grant access to 401(k) style plans for part-time employees working 500+ hours per year who have been with the company for over 3 years.


Individual investment positions detailed in this post should not be construed as a recommendation to purchase or sell the security. Past performance is not necessarily a guide to future performance. There are risks involved in investing, including possible loss of principal. This information is provided for informational purposes only and does not constitute a recommendation for any investment strategy, security or product described herein. Employees and/or owners of Nelson Roberts Investment Advisors, LLC may have a position securities mentioned in this post. Please contact us for a complete list of portfolio holdings. For additional information please contact us at 650-322-4000.

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