The House Passes the SECURE ActBy Anne Zavaglia
Posted on May 30th, 2019
Many Americans do not have enough saved for retirement, with only 51% of workers having access to a work place retirement plan[i]. In an effort to bridge the savings gap, a number of bills have been introduced to Congress this year. The Setting Every Community Up for Retirement Enhancement Act of 2019, known as the Secure Act, passed the House on May 23. The bill has similar legislation to the Retirement Enhancement and Savings Act of 2019, RESA, which was introduced by the Senate in April.
Significant changes in the bill include:
Required Minimum Distributions
Increases the age for Required Minimum Distributions (RMDs) from 70.5 to 72. Pushing the RMD age to 72 gives those who may still be working past age 70 the opportunity to continue to save.
Currently savers can contribute to a Roth IRA past age 70.5 and not be subject to RMDs. Those still employed, and participating in their company’s 401k plan may also delay taking their first RMD, however, the rules are murky. A person must be employed on the last day of the year and it doesn’t apply to a person that is more than 5% owner.
Repeals the Maximum Age for Traditional IRA Contributions
Currently the maximum age limit to contribute to a Traditional IRA is 70.5 (the same age RMDs start). Repealing the age limit will allow for workers to save longer for retirement, even after RMDs start.
529 Plans could be used for costs associated with apprenticeships, and to repay student loans up to $10,000.
Many retirees fear they will outlive their retirement savings. The bill makes it easier for employers to offer lifetime income products in their defined contribution plans.
Multiple Employer Plans
Restrictions would be removed on small businesses’ ability to band together in a multiple employer plan (open MEP). An open MEP allows unaffiliated businesses to pool employees and retirement assets under one defined contribution plan, reducing administrative costs.[ii]
Allows for a $500 tax credit for employers offering retirement plans with automatic enrollment, and raises the savings cap to 15 percent. The higher percentage encourages employees who want to save more do so sooner.
Eliminates the Stretch IRA
To account for lost tax revenue from other changes in the bill, the “stretch” IRA would be eliminated. A stretch IRA allows younger non-spouse beneficiaries to take RMDs based on their life expectancy. The RMDs are “stretched” out over their lifetime, and are generally smaller and subject to less tax.
Though the ability to stretch an IRA will be eliminated, those that inherit an IRA will have 10 years to take the RMDs, versus 5 years now.
Increases Tax Credit for Small Business
Current law allows small businesses starting a new retirement plan a $500 tax credit. The bill increases the credit to as much as $5,000, and the credit applies for three years.
Expands 401(k) Eligibility for Part-Time Workers
Part-time workers would be permitted to join their company’s 401(k) plan if they complete one year of service and work 1,000 hours, or they have three consecutive years of service with at least 500 hours of service each year. Part-time workers with 500 hours of service would be excluded from nondiscrimination and top-heavy testing.
What Is Next?
Shortly after the House vote, Senate leaders decided to forgo passing RESA and “hotlined” the SECURE Act in an attempt to move it via unanimous consent. [iii] However, the bill is currently being held up in the Senate due to the objection that some provisions in the expansion of 529 Plans were stripped from the House Bill just before it passed. The provisions would have allowed 529 funds to go toward homeschooling and education support for students with disabilities.
If the bill does not pass unanimously, or through an amendment process, there is the possibility that the Senate will attach the bill to a “must-pass piece of legislation” later in the year. [iv]
“H.R. 1994 — 116th Congress: Setting Every Community Up for Retirement Enhancement Act of 2019.” www.GovTrack.us. 2019. May 24, 2019 https://www.govtrack.us/congress/bills/116/hr1994/text/eh