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Retirement Planning > Retirement Investing

5 Ways the Secure Act Would Affect Retirement, 529 Plans

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It’s not just Santa’s elves who are working late these days.

Advisors like Jeffrey Levine — head of advisor education for; CEO of BluePrint Wealth Alliance; and a CFP, CPA and father of three — burned the midnight oil Monday after House and Senate leaders attached the Setting Every Community Up for Retirement Enhancement (Secure) Act to the year-end spending bill.

Given that the Secure Act is seen as the most sweeping retirement legislation for more than a decade, it’s no wonder that Levine fired out a series of 34 tweets on the topic.

Here are the biggest takeaways for advisors and their clients:

1. Limited (or Near Death) Stretch IRAs 

 “Let’s start w/ the big news… the ‘Death’ of the ‘Stretch’. In fairness, it isn’t dying a complete death…

It’s just that MUCH fewer people will qualify to be able to stretch distributions. Instead, most new (more on this in a bit) designated beneficiaries will have to empty inherited retirement accounts by the end of the 10th year following the year of death,” he said on Twitter.

There will be no required minimum distributions during the first nine years. “Rather, whatever is left in the account just has to be emptied by the end of 10th year. This will be of help to a small number of beneficiaries, but hurts those who wanted to stretch,” he explained.

There are situations where the 10-year rule won’t apply to a designated beneficiary — for so-called “eligible beneficiaries.” “EBs are: 1) Surviving spouse 2) Disabled 3) Chronically ill 4) Not more than 10 years younger than owner 5) Minor children,” Levine tweeted.

The new rules only apply to beneficiaries who inherit after 2019, according to the financial planner. Existing beneficiaries can still “stretch” RMDs. 

“The bad news is WE HAVE JUST 2 WEEKS TO PLAN FOR MAJOR CHANGES for many future benes,” he tweeted. “Some exceptions to the 2020 effective date apply…”

The effective date of change will not be 2020 for collectively bargained plans, governmental plans (including the Thrift Savings Plan for federal employees, including members of Congress, and members of the uniformed services) and some qualified annuities that already have been annuitized over the life/joint life of their owners. 

2. Good News on RMDs

“Now that we’re all sufficiently depressed, let’s switch gears to some things that are more positive for retirement account owners, starting with the change in RMD age. SECURE Act will push back the RMD age to 72,” Levine tweeted.

The key change is the new simplicity to the real kickoff date for RMDs.

“Biggest benefit here may simply be that people actually understand when they turn 72 years of age,” he continued. “So knowing when RMDs start is about to get easier. Of course, we’ll still have to deal w/ age 59 1/2, so for those already feeling nostalgic about half Bdays, there’s that.”

(In general, IRA owners must wait until age 59 1/2 to withdraw IRA funds without paying the 10% early distribution penalty.) 

As Levine noted Tuesday: “Upon re-reading Section 114 of SECURE Act, it’s clear if you’re 70 1/2 this year, the “new” RMD rules don’t apply to you. You’re ‘stuck’ w/ RMDs for this year and next!”

3. Good News for Traditional IRAs

“OK, now something else that’s kinda nice… Section 107 of SECURE repeals maximum age for making a Traditional IRA contribution. This makes a ton of sense b/c: – More people are working past 70 (it’s about 30%) – The TIRA is the ONLY retirment acct w/ such a restriction,” Levine tweeted.

The SECURE Act does include an anti-abuse provision to reduce qualified charitable distributions (QCDs) by the amount of the traditional IRA deduction received after age 70½, he points out.

4. Time for MEPs?

Multiple employer plans combine different businesses into one plan. 

But the IRS has imposed a “one bad apple” rule on them, according to Levine.

This meant that if any one employer within the MEP failed to meet its requirements to qualify for the plan, then the entire plan could be disqualified.

Now, however, we’re going to have truly open MEPs. And THIS is where it can get SUPER-cool for advisors…,” Levine tweeted. 

Also notable is the Secure Act’s elimination of the nexus requirement, which was loosened earlier this year, he points out. The nexus rule stipulated that members of a MEP had to have common interests in addition to participation in the retirement savings plan.

“Imagine building your own super-tricked-out, low-cost, bad-ass 401(k) that you can offer to any biz you work w/ (or that wants to work w/ you). You can have 1 big MEP for everyone! Streamlines things for advisors, which SHOULD lead to cost efficiencies for end-clients,” he explained.

5. 529 Plan Updates

On the 529 savings plan front: “The big change here is that up to $10,000 of 529 plan money can be used to pay off student debt. The $10k is, unfortunately, a lifetime amount, and NOT an annual limit. But, an additional $10k can be used to pay off student debt for each of the 529 plan [beneficiaries'] siblings!” he explained.

There’s no double dipping, the CFP points out. This means that if 529 plan money is used to pay down student debt interest, the interest doesn’t qualify for an “above-the-line” deduction. Also, apprenticeship programs are being added to the list of institutions able to take 529 funds, if they are registered with the Labor Department.

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