by LFG Tax Director, Mark Sipos
On May 23rd, 2019, the U.S. House of Representatives voted overwhelmingly in
favor of the SECURE Act, which stands for "Setting Every Community Up for
Retirement Enhancement." Most of the provisions in the act are designed to make
it easier for more people to save for retirement, and for more employers to offer
retirement plans for their employees.
One notable provision in the bill would essentially end what's known as the "stretch
IRA." Under the current law, when a beneficiary inherits an IRA, the beneficiary
can choose to have the IRA balance distributed in two ways: either in required
minimum distributions based on his or her life expectancy, or during the five years
after the original account holder passes. Making maximum use of the IRA's taxdeferred compounding like this is known as a "stretch IRA." Under SECURE, in
most instances an inherited IRA would have to be fully distributed within 10 years of
the original owner's death, although there are some exceptions.
Some additional areas the bill covers are as follows:
• The repeal of the maximum age for traditional IRA contributions, which is
• An increase of the required minimum distribution age for retirement accounts to
72 (up from 70½)
• Allowing long-term part-time workers to participate in 401(k) plans
• Increase of the auto-enrollment safe harbor cap to 15% from 10%
• Allowing more annuities to be offered in 401(k) plans
• Parents can withdraw up to $5,000 from retirement accounts penalty-free within
a year of birth or adoption for qualified expenses
• Parents can withdraw up to $10,000 from 529 plans to repay student loans
A similar bill, titled the "Retirement Enhancement and Savings Act" (RESA) is in
the Senate Finance Committee. This also would do away with the 'stretch IRA,"
provision above. While the Senate (RESA) bill generally overlaps and shares a great
deal with the House Bill (SECURE), the main difference between the two is that the
Senate bill does not change the maximum age for Traditional IRAs from 70 ½.
While there is broad, bipartisan support, the Senate has yet to vote on RESA. If
it does pass, and it's materially different from the version in the House, the revised
bill would come before the House again, and then move on to the President. While
the timeline is uncertain, it certainly bears watching, as it will affect most of our
retirement plans in some way. We will monitor the legislation and keep you informed
of any changes.