What some are referring to as one of the most significant pieces of legislation related to retirement planning in more than a decade, the U.S. House of Representatives recently passed what has been coined the SECURE (Setting Every Community Up for Retirement Enhancement) Act, by an overwhelming and bi-partisan vote of 417-3. The bill will now move to the U.S. Senate where it also appears to have bi-partisan support. As the bill is very likely to become law in the coming weeks or months, depending upon if modifications are made along the way, we wanted to update CCM clients on some of the key provisions of the Act. We will be monitoring the status of the bill and will provide additional details once legislation is finalized.
Following are several of the most notable provisions for CCM clients that are included in the bill:
- The bill increases the beginning age for required minimum distributions (RMDs) from retirement plans to age 72 from age 70½ beginning in tax year 2020. The bill will not impact those who have already reached age 70 ½ in the year 2019 or earlier.
- The bill eliminates the ability for most non-spouse beneficiaries to stretch inherited retirement account distributions over their lifetime. The beneficiary would instead need to completely distribute the retirement account within ten years of the inheritance. No minimum distribution would be required each year as long as the entire balance is distributed by the end of the tenth year. The rules for spousal beneficiaries would not change under the legislation.
- The maximum age for Traditional IRA contributions (deductible or non-deductible) would be removed. Current law forbids Traditional IRA contributions after reaching age 70½. The legislation would align the rules for Traditional IRA and Roth IRA contributions to be allowed at any age subject to the receipt of earned income in order to qualify.
- The bill provides for penalty-free distributions of up to $5,000 from a retirement plan upon the birth or adoption of a child. The bill will also allow for these funds to be contributed back into the retirement plan at a later date.
- The bill extends the deadline for businesses to establish a retirement plan from the close of the tax year until the tax return filing due date.
- The bill expands the use of 529 plan accounts to cover up to $10,000 of qualified student loan payments and the costs associated with a registered apprenticeship.
- The bill also includes several provisions to ease the administrative burden and cost for businesses to set up and maintain retirement plans with the goal of making retirement plans more widely available.
The CCM Tax Team is actively analyzing how these changes will impact the integrated financial advice and counsel that we provide at Carlson Capital Management. We will be working with CCM clients in the remainder of 2019 and into the 2020 tax season to help optimize your tax situation.
NOTE: The information provided in this post is intended for clients of Carlson Capital Management. We recommend that individuals consult with a professional adviser familiar with their particular situation for advice concerning specific investment, accounting, tax, and legal matters before taking any action.