Is The Secure Act An “Enhancement” To Retirement Plans?


In June of last year, we wrote about the SECURE Act that passed the in the House. The bill languished in the Senate until the middle of December when it was passed and signed into law. It received strong bipartisan support and has been presented as an “enhancement” to retirement plans, however, we see more negatives than positives out of this Congressional “holiday gift.”

The number one problem will be for non-spouse beneficiaries of IRAs. Under the previous law, a non-spouse beneficiary of an IRA could keep funds tax deferred for many years based on their life expectancy – known as a stretch IRA. Now, they are required to fully distribute and pay tax on the IRA within 10 years after the inheritance. In other words, pay taxes sooner. The new law also enables the expansion of annuity sales within 401(k) plans. Yikes. Many annuities are saddled with high fees and commissions and we are very concerned that these products will be pushed upon employees who do not need or understand them.

The SECURE Act does include some features we do like. The starting age for making required minimum distributions from your IRA moves up to 72 from 70 ½. Also, the new law removes the age cap for making IRA contributions. Previously, individuals age 70 ½ or older could not make IRA contributions. We also like that the SECURE Act does not change the eligibility for individuals over age 70 1/2 to gift directly from their IRA to a charity. Gifting directly from an IRA to a charitable organization is not a taxable event to the donor or charity. The gift amount is limited to $100,000 per year.

In summary, the new law includes major changes that will impact retirement and estate planning. It will be important to review your estate plan and take a fresh look at the beneficiary information listed on your IRAs, Roth IRAs and 401(k).