SECURE Act Passed by Congress on the Way Out the Door

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You’ve read about the SECURE Act and the hidden taxes targeting your family that it contains. Now, while everyone is busy Christmas shopping, and just as Congress is about to leave town, the bill was smuggled into a spending bill, and pushed through the legislature.

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According to Barron’s the bill “means a spate of changes for retirees related to their required minimum withdrawals, the way they use IRAs, and rethinking estate planning options.” Reshma Kapadia reports on the bill for Barron’s writing:

The Setting Every Community Up for Retirement Enhancement—better known as the Secure Act—has been in the works for roughly three years and has enjoyed bipartisan support, despite being stalled for years. As of last week, many policy watchers didn’t expect it to get passed given the flurry of other issues consuming Washington, D.C. But different pieces of legislation often are attached to must-pass appropriations bills at the last minute, and that is what has happened. “It is always good to be attached to the last train leaving the station in Washington, which is what this budget bill is. It has to be passed by Friday, when there will be a government shutdown,” says Shai Akabas, director of economic policy at the Bipartisan Policy Center. “Even amid impeachment debates, this will be an extremely huge priority for Congress.”

Especially disconcerting are the SECURE Act’s changes to the Stretch IRA, and its allowance of fee-loaded annuities in 401(k) plans. The Wall Street Journal explains both changes in a Q&A by Anne Tergesen here:

Q: What are the new rules for people who inherit IRAs or 401(k)s?

Currently, people who inherit Roth and traditional accounts can often stretch required withdrawals—and make associated tax payments—over their own lifetimes, a technique known as the “Stretch IRA.” The legislation would require those who inherit from people who die after Dec. 31, 2019, to take the money out and pay any taxes due within a decade.

The bill exempts some beneficiaries, including surviving spouses, who can still stretch the distributions—and tax payments—over their lifetimes.

401(k)s

Q: The new law makes it easier for employers to offer annuities in 401(k)s. But annuities often have high fees. Should I avoid them?

Annuities, which make it easier for retirees to convert their retirement savings into a steady lifetime income, can make sense for retirees unable to cover their basic living expenses with Social Security and other forms of guaranteed income, such as pensions, said Mr. Slott.

But annuities generally have higher fees than mutual funds do, and so they reduce workers’ returns by more.

Workers should benefit from their employers’ ability to obtain lower group prices on these contracts. United Technologies Corp. , a Farmington, Conn., company that builds products including aircraft engines, added a variable annuity with an income guarantee to its 401(k) plan in 2012. The price for the guarantee, which is available in the $29 billion plan’s target-date funds, is 1.18% a year. When investment fees are added, the total cost is about 1.26% a year, versus a typical total cost of over 3% for a comparable annuity in the individual market, according to Morningstar.

E.J. Smith - Your Survival Guy

E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. His focus at all times is on preparing clients and readers for “Times Like These.” E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zildjians. He grew-up worshiping Neil Peart (RIP) of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris. Please get in touch with E.J. at ejsmith@yoursurvivalguy.com To sign up for my free monthly Survive & Thrive letter, click here.