New Law Changes Rules for Retirement Accounts

Above: Dennis Markway of Iron Horse Wealth Management. Frank Mokosak of Mokosak Advisory Group.


IRA owners got a Christmas present of sorts when Congress passed a year-end bill that allows them to forestall distributions from those retirement savings accounts. The same legislation also enhanced rules for 401(k) plan participation.

Setting Every Community Up for Retirement Enhancement, or SECURE, was passed by both houses and quickly signed into law by President Donald Trump. It was part of a spending bill meant to keep the government open, but included a big overhaul to the way the government encourages people to save and invest for retirement.

For one, the government will now allow owners of individual retirement accounts to wait until they reach age 72 to begin mandatory annual withdrawals from those accounts. The previous withdrawal mandate had begun at age 70 1/2.

A qualifying retiree with, say, $1.5 million of investments in an IRA is required to take an annual distribution of around $58,000. He or she will still have to take that distribution, but will get an extra 1 1/2 years to build that nest egg free of taxes.

For those still in the workaday world, the law enhanced 401(k) plans in a way that makes them more attractive for small employers to offer. It provides tax credits and protections on collective multiple employer plans, “which is fantastic,” says Dennis Markway, president of Johnston-based Iron Horse Wealth Management LLC. “That gets more people in the retirement system.”

Principal Financial Group Inc., one of the nation’s largest 401(k) providers, also seems pleased with SECURE. “It checks all the boxes for improving the odds of American workers’ financial stability in retirement,” CEO Dan Houston previously told Investment News. “There’s a lot of win-win.”

Frank Mokosak, at Mokosak Advisory Group in Urbandale, says smaller employers already have available the SIMPLE IRA, which is cheaper to administer and less complicated than a 401(k).

Be that as it may, this is now the law of the land. Another law has it that as the government giveth, it also taketh. Anyone who inherits an IRA has been allowed to stretch out the required minimum distributions over his or her lifetime. Bequeathing an account to the youngest member of a family would stretch out that payout period for decades, which would allow more time for more asset accumulation. Under SECURE, however, non-spousal beneficiaries will be required to deplete their inherited IRAs within 10 years.

Writing in Forbes, contributor Leon LaBreque estimated that a 25-year-old granddaughter who inherited a $1 million IRA could stretch it out 57.2 years and face a tax bill of no more than $17,482 on her first distribution. With SECURE in place, that distribution period is vastly compressed and a tax bill could run $300,000 or more.

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