IRA and Retirement Plan Changes are Coming

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posted on Tue, May 28, 2019

While most of the media is reporting on the Mueller report and potential impeachment proceedings, Congress is currently working on some major changes to company retirement plans and IRA accounts.  

The House of Representatives has put together the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019.  And at the same time, the Senate Finance Committee is working on a bill titled the Retirement Enhancement and Savings Act (RESA).  The details in both bills are slightly different and ultimately a compromise will be made on a final bill to be signed by the President.  Both bills are addressing the following issues:

  • Changes to the Stretch IRA - Currently, if you inherit an IRA account, you have an option to stretch out the distributions from the account over your lifetime.  Since distributions are taxed as ordinary income, stretching them out as long as possible reduces the annual tax burden.  The current SECURE act would limit this stretching to 10 years for non-spousal inherited IRA accounts.  This would create a higher annual tax burden for the recipient.

  • Age Increase for RMDs - Under current law, once your turn 70 1/2 years old you need to start taking taxable distributions from your IRA accounts.  The SECURE act proposes to increase the age limit to 72, while the RESA Act wants to increase it to 75.

  • No Age Limit for IRA Contributions - Under current law you cannot make IRA contributions once you turn 70 1/2.  Both Acts would eliminate that age restriction.

  • Changes to Retirement Plans - The main objective of both Acts is to make it easier for small businesses to set up retirement plans and participants to contribute.  Both Acts will offer credits to small businesses for start up costs, make reporting requirements easier and allow for companies to combine plans into something called a multiple employer plan.  There are also provisions to make automatic enrollment easier.

The SECURE Act has already been voted through by the House of Representatives at a vote of 417-3 and since the RESA Act is very similar, I would expect something to reach the President later this year.  I will offer a more detailed blog posting once something is final.

In the meantime, if you have any questions you can contact me here.