On May 23rd, the House of Representatives passed the Setting Every Community Up for Retirement Enhancement (SECURE) Act, a bill that is currently being debated in the Senate. The bill contains more than 20 sections, and if it makes its way through the senate and is eventually signed by President Trump, it can have a substantial impact on your retirement savings and estate planning.
If the SECURE Act were to pass and become a law, it would:
- Give part-time workers the opportunity to enroll in a 401(k) plan.
- Allow people to contribute to traditional IRAs for as long as they want.
- Change the minimum distribution age for retirement accounts from 70 1/2 to 72 years old.
- Allow for Penalty-free withdrawals under special circumstances.
- Add a requirement to withdraw from inherited retirement accounts within 10 years.
What If I Have an IRA I Want to Pass on to My Children?
If you are planning to pass your IRA account to your children, the SECURE Act will directly affect you. With the current law, there are after-death required minimum distribution rules that allow your designated beneficiary to draw down the remaining plan benefits over their life expectancy.
Under the SECURE Act, your beneficiaries won’t be able to continue withdrawing funds throughout their lifetime and would instead be required to drawdown their entire inherited interest within 10 years. This can help prevent young children from receiving forced distributions from their deceased parent’s IRA when they are young adults and financially irresponsible, and rather, the money could sit in the market longer and grow, and begin to get paid out when they are a bit older and more capable of making financial decisions.