On December 20, 2019, the SECURE Act was enacted. It changed some of the individual retirement account parameters, and more adjustments are on the way. We will look at them in this post, but first, we will review the contents of the original SECURE Act.
Elimination of the Stretch IRA
From an estate planning perspective, the most significant change was the elimination of the stretch IRA. To provide an explanation, non-spouse beneficiaries of Roth and traditional individual retirement accounts have always been compelled to take required minimum distributions (RMDs).
Distributions to a Roth account beneficiary are not taxed because the accounts are funded with after-tax earnings. Contributions into a traditional account are made before taxes are paid on the income, so distributions to the original account holder and the beneficiary are taxable.
The beneficiary of either type of account could choose to take only the minimum that was required by law for the maximum length of time. This is called a “stretch IRA,” and the implementation of the strategy would maximize the tax advantages.
Required minimum distributions are calculated based on the age of the beneficiary. As a result, a relatively young beneficiary of a well-funded account would be able to stretch it out for a significant period of time.
This window of opportunity was closed when the SECURE Act was enacted, because it put a 10 year limit on the distributions. All the assets must be taken out of an inherited individual retirement account within 10 years.
Required Minimum Distribution Age
Traditional account holders must take RMDs after they reach a certain age because the IRS has never collected any taxes and they want to do so while the account holder is still alive. The age was 70.5 before the SECURE Act came along, and this measure raised it to 72.
Contributions into the account had to stop when the account holder reached the age of 70.5, but this age limit has been jettisoned. You can make contributions into a traditional account as long as you are earning income, regardless of your age.
Pending Changes
A bill has been introduced into the House of Representatives on a bipartisan basis that is called the Securing a Strong Retirement Act or SECURE Act 2.0. In the Senate, the Retirement Security & Savings Act is moving through the legislative process, and it has similar provisions.
We should emphasize the fact that each of these respective bills was introduced by members of opposing parties, and they have strong bipartisan support across the board. It is very likely that these provisions will in fact be implemented in the relatively near future.
One change would increase the required minimum distribution age to 75, and employers would be required to automatically enroll their employees into their 401(k) plans. If an employee wants to opt out, they would be allowed to do so after they were automatically enrolled.
A lot of employees with student loan debt are not in a position to contribute into 401(k) accounts while they are simultaneously making student loan payments. With this in mind, there is a provision that would give employers the ability to provide 401(k) matches for people that are making payments on the student loans.
The savers credit for low to middle income people is $1000 right now. It would go up to $1500, and the eligibility standards would be changed to give more people the ability to qualify for the credit.
There is a $6500 401(k) catch-up contribution for employees that are at least 50 years old at the present time. It would go up to $10,000 for people that are 60 years of age and older in the Senate version, and the increase would be available to people between 62 and 64 in the House bill.
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While he was in law school, he worked as an aide to the late John Sparkman, Senior Senator from Alabama. This gave him the opportunity to gain intimate knowledge of the workings of government, and this background has served him well.
He started his private practice in New York in 1974, the first Sikh to be admitted to the bar in the state of New York.And in 1995, when he narrowed his legal focus to the areas of estate planning and elder law, the prestigious American Academy of Estate Planning Attorneys accepted him into their membership.
Special needs planning is an important aspect of the field, and Mr. Khalsa has intertwined his empathy with his expertise to become a leading advocate in this area. Shortly after the Education for All Handicapped Children Act was enacted in 1975, he won the first case in New York that was adjudicated under this law.
S.J. Khalsa has a penchant for philanthropy, and he has raised well over $20 million for charities nationwide. He is a deeply spiritual man who represents the Sikh religion at religious and interfaith gatherings all over the globe.
He believes that successful professionals should contribute to the fabric of their communities, and to this end, he works with law enforcement in New York.
Mr. Khalsa is a graduate of the FBI Citizens Academy program, and he is active in their Alumni Association. He is a member of the FBI/New York Police Department Joint Task Forces on Civil Rights and Hate Crimes, and he sits on the Community Engagement Council that advises the FBI Assistant Director for New York.
He is the author of the highly acclaimed book, Estate Planning Essentials: A Guidebook for Modern Families. Lawyers of Distinction recognized him for his excellence in 2020, naming him a 2020 Power Lawyer, and he is a member of the prestigious American Academy of Estate Planning Attorneys.
Mr. Khalsa lives in Manhattan with his wife, and he has two grown children and four grandchildren. He likes to travel, and he is an avid golfer. As the co-owner of Kundalini Yoga East in New York along with his wife, he instructs practitioners and aspiring yoga teachers.
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