It’s not just Santa’s elves who are working late these days.
Advisors like Jeffrey Levine — head of advisor education for Kitces.com; 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.”