How the SECURE ACT could impact your financial future

With the new year comes new legislation which was passed at the end of 2019 as part of the $1.4 trillion appropriations bill. The SECURE ACT—which stands for Setting Every Community Up for Retirement Education — appears to be a step in the right direction for American savers.

I recently sat down and read through the new legislation and what follows are what I believe to be the most important takeaways for investors.


Historically, investors in retirement accounts were required to begin taking their minimum distributions by April 1st of the year following the year they turned 70 and a half. But now, for investors yet to turn 70 1/2, the RMD start date begins at age 72.

The primary benefit to this change is that it affords investors two more years to grow their tax-deferred assets. This also opens up more time for investors to consider making conversions from IRA to ROTH IRAs. Another benefit is that for those individuals (or couples) who are working into their 70’s, they can continue to make IRA contributions, whereas before you were no longer allowed to contribute once achieving age 70 & 1/2.


The rules on inherited IRAs have also changed with the passing of the SECURE ACT. The Stretch IRA strategy allowed for beneficiaries to “stretch” the required minimum distributions across the beneficiary’s life expectancy. For accounts left to younger beneficiaries, this meant the IRA assets could potentially grow for decades. Under the SECURE ACT, non-spouse beneficiaries (including Trusts) must now distribute the entire inherited IRA within 10 years. Aside from potential tax implications, it doesn’t matter whether the beneficiary drains the account a little each year or sporadically. The rule simply states the account must be drained and closed by the 10 year mark. Important to note that if a spouse is the beneficiary, they are exempt from this 10 year distribution rule and are still allowed to transfer their late spouse’s IRA balance into their own IRA account and treat it as their own (though this may not always be advisable depending on the age of the surviving spouse).


The legislation also impacts 529 education savings plans which are tax-advantaged accounts to help pay for various education expenses. The SECURE ACT helps expand the expense categories which means that investors can now use these dollars to pay for certain apprenticeship and vocational programs. Additionally, 529 plans can also now be used to pay for qualified student loan payments.


The SECURE ACT increases the existing tax credit from $500 to $5,000 for employers who start a retirement plan for their employees. Additional tax credits are available for employers who build in “auto enrollment” features.


For investors who pull funds early (before age 59 and 1/2) from an IRA or 401k plan, they are assessed a 10% early withdrawal penalty, in addition to taxes. For investors who take an early distribution due to a qualified birth or adoption, they are exempt from this 10% penalty (up to a $5,000 distribution).


Retirement plans will now be required to include a disclosure that illustrates the income stream that could be generated if the participant purchased a single lifetime annuity or a qualified joint and survivor annuity for the employee and their spouse.


While I’ve only highlighted the most significant changes that the SECURE ACT created, generally speaking, it appears to be a step in the right direction for American investors and retirees. And while my hope is that the new legislation doesn’t add unnecessary complexity for investors, I do have concerns that the potential for missteps will increase.

Due to the effective elimination of required minimum distributions for inherited IRAs, I would encourage all investors who have named their trust as beneficiary of their IRA to review their trust with a qualified legal professional or estate planning lawyer.

As we conduct financial planning reviews with clients this year, we will be reviewing potential opportunities to take advantage of the SECURE ACT. As always, please do not hesitate to reach out to us with any questions you have.

Jeff DeLarme, CFP®
Registered Principal, Financial Advisor



Please note, changes in tax laws or regulations may occur at any time and could substantially impact your situation. While familiar with the tax provisions of the issues presented herein, Raymond James financial advisors are not qualified to render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional. The information in this writing has been prepared from sources believed to be reliable, but is not guaranteed by Raymond James Financial Services or DeLarme Wealth Management and is not a complete summary or statement of all available data necessary for making an investment decision. Any information provided is for informational purposes only and does not constitute a recommendation.

Investors should consider, before investing, whether the investor’s or the designated beneficiary’s home state offers any tax or other benefits that are only available for investment in such state’s 529 college savings plan. Such benefits include financial aid, scholarship funds, and protection from creditors. Investors should consult a tax advisor about any state tax consequences of an investment in a 529 plan.

Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Investment advisory services offered through Raymond James Financial Services Advisors, Inc. DeLarme Wealth Management is not a registered broker/dealer, and is independent of Raymond James Financial Services.

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