The SECURE Act: Two Experts on How it Affects You

The American College of Financial Services
December 30, 2019

Recently, Congress finally passed the long-anticipated “Setting Every Community Up for Retirement Enhancement” (SECURE) Act--a bundle of new rules for the financial services industry that could reshape the way people think about retirement and other money matters. But what does it mean for financial advisors, their clients, and the general public?

Having been signed into law by President Trump, the SECURE Act goes into effect January 1 and brings with it significant changes, though among financial services professionals, the jury is still out on how sweeping or impactful those changes will be.

As its name suggests, the primary stated goal of the SECURE Act is to extend the benefits of retirement saving and planning to those who may not have had access to it before, and to clean up existing issues. Steve Parrish, co-director of the Retirement Income Center at The American College of Financial Services, says a big change could be how young people--especially part-time workers--handle saving for retirement.

“The new Multiple-Employer Plan (MEP) provisions in the Act will make it easier for small companies and gig economy setups to join small plans and offerings, and will likely encourage more participation across the labor market,” he says.

Parrish says the Act could help convince more young people to commit their hard-earned money to saving for later in life, as new provisions allow for flexibility in taking money out of retirement accounts for family planning, education, and other needs and pay it back later on.

But others in the industry are crying foul over pieces of the SECURE Act, including raising the age limit for required minimum distributions (RMDs) of IRAs and axing so-called “stretch rules” that allowed those who inherited retirement accounts to spread out their withdrawals. Those accounts now have a 10-year clock on them to be emptied, and some claim it’s a scheme to generate more tax revenue for the government on the backs of older Americans.

Ross Riskin, Assistant Professor of Taxation at The American College, says the SECURE Act will change how we approach college planning as well. Due to the passage of the Act, investors can now use 529 plans to repay student loans tax-free at the federal level to a limited extent ($10,000 lifetime limit per beneficiary and $10,000 limit for siblings of the beneficiary). However, since some states didn’t expand qualifying education expenses to include K-12 tuition under the Tax Cuts and Jobs Act (TCJA) of 2017, Riskin says it’s unclear if all states will follow the provisions put in place under the SECURE Act, either. Those provisions could allow payments made from 529 plans for repaying student loans to be classified as qualified distributions at the state level, which could likely result in increased complexity and tax compliance costs.

Riskin says it all comes down to what kind of supports are put in place as the SECURE Act moves forward.

“The unknown is whether small companies will avail themselves of MEP liberalization,” he says. “Both SEPs and SIMPLEs have failed to spur small business retirement plans in the past. Much of this depends on how the IRS crafts regulations to support this law.”

For his part, Parrish concedes that uncertainty could lead to shifts for retirement planners as well.

“Inherited IRA trusts will have to be completely redrafted,” he says. “With the move to age 72 for RMDs, estate planners may need to anticipate larger estates than if it were still 70½.  Furthermore, once a person retires, creating the pattern of which accounts to draw from will also change. As is true anytime we have new tax legislation, with change comes opportunity.”

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