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A SECURE Step for American Retirement

| January 13, 2020

The Setting Every Community Up for Retirement Enhancement (SECURE) Act, which aims to provide a clearer path to a secure retirement for more Americans, recently passed into law.

The new law includes many significant changes to the financial services industry. While we’re still validating the effects of the law to see exactly what it means over time, there are four factors you should know about immediately.

Greater Access to Retirement Plans

Through a combination of tax credits and employer liability protections, the SECURE Act makes it easier for employers, especially small and medium-sized businesses, to offer retirement plans through open multiemployer plans. These setups combine multiple businesses into a single retirement plan, offering the benefits of scaled buying power and easier administration.

Required Minimum Distribution Age Bumped to 72

Owners of Traditional Individual Retirement Accounts (Traditional IRAs) are forced to withdraw money from these accounts by a certain age. It used to be 70-and-a-half, but the SECURE Act increased to age 72. The law also eliminates the 70-and-a-half age limit for Traditional IRA contributions (for those still working).

“Stretch IRA” is Gone

A financial planning strategy known as the “Stretch IRA” has been eliminated by the SECURE Act. Prior to the new law, when non-spouses inherited IRAs they could “stretch” them out over time by electing to defer taxable benefits based on their own lifespans. It meant the tax deferral could continue over many years, even generations.

That is no more.

Now, there is a 10-year time limit on tax deferral of inherited IRAs for the vast majority of beneficiaries. It’s important to note that people who owned “Stretch IRAs” before the SECURE Act still maintain their tax deferral status, as they’ve been grandfathered into the new law.

The SECURE Act simplifies it so there are no annual RMDs with inherited qualified retirement plans. Instead, the only RMD is at the end of 10 years, when the account must be liquidated. However, surviving spouses, surviving children, disabled individuals, chronically ill individuals, and beneficiaries who aren’t 10 or more years younger than the original account owner are exempt from the 10-year RMD.

Eased Rules for Annuities in Retirement Plans

The last important highlight of the SECURE Act involves annuities and retirement plans. The rules allowing employers to offer annuities within their retirement plans were restrictive and punitive, resulting in many employers not including annuities among the investment options.

Now, employers are provided a safe harbor against liability for offering annuities in their retirement plans. This should result in more lifetime income options, which are common ways to help retirees keep the paychecks rolling in retirement and fight longevity risk (also known as outliving your money).

That’s the SECURE Act in a nutshell.

Without a doubt, there are some big changes coming to the financial services industry. But as it stands, the law seems set to achieve its intended impact of providing a clearer path to a secure retirement for working Americans.

That’s a step in the right direction.

Securities sold through CoreCap Investments, Inc., a registered broker-dealer and member FINRA/SIPC; advisory services offered by CoreCap Advisors, Inc., a registered investment advisor. Cornerstone Financial and CoreCap are separate and unaffiliated entities.