SECURE Act - your thoughts

[target2019]

I feel this will break my parents heart you know. They were proud to have a little to pass on for me. . . Does that sound weird?

Worst case, you get 10 years to take the IRA money. It may be that they can mitigate this.

It does not change the balance, if that is what you mean.

And it's not final yet.

 

[Dtail]

Worst case, you get 10 years to take the IRA money. It may be that they can mitigate this.

It does not change the balance, if that is what you mean.

And it's not final yet.

10 years is a lot better than receiving nothing and having unlimited time to spend it........

 

[pb4uski]

Yeah well never claimed to be normal.

or good at math.

 

[ncbill]

Unless they tighten up the "eligible beneficiaries" (EB) language quoted in a previous post pretty much anyone can be an EB and thus exempt from the 10 year limitation.

Type II diabetes (increasingly common as one ages) maybe even high blood pressure would easily meet that vague "chronically ill" criteria.

 

[cathy63]

Unless they tighten up the "eligible beneficiaries" (EB) language quoted in a previous post pretty much anyone can be an EB and thus exempt from the 10 year limitation.

Type II diabetes (increasingly common as one ages) maybe even high blood pressure would easily meet that vague "chronically ill" criteria.

If you read the actual bill, it's really a lot tighter than the journalist's summary would lead one to believe.

The bill says:

(IV) a chronically ill individual (within the meaning of section 7702B(c)(2), except that the requirements of subparagraph (A)(i) thereof shall only be treated as met if there is a certification that, as of such date, the period of inability described in such subparagraph with respect to the individual is an indefinite one which is reasonably expected to be lengthy in nature)​

7702B is titled "Treatment of qualified long-term care insurance". Part (c)(2) says:

(2)Chronically ill individual
(A)In generalThe term “chronically ill individual” means any individual who has been certified by a licensed health care practitioner as—
(i)being unable to perform (without substantial assistance from another individual) at least 2 activities of daily living for a period of at least 90 days due to a loss of functional capacity,
(ii)having a level of disability similar (as determined under regulations prescribed by the Secretary in consultation with the Secretary of Health and Human Services) to the level of disability described in clause (i), or
(iii)requiring substantial supervision to protect such individual from threats to health and safety due to severe cognitive impairment.
Such term shall not include any individual otherwise meeting the requirements of the preceding sentence unless within the preceding 12-month period a licensed health care practitioner has certified that such individual meets such requirements.
​

"Activities of daily living" are also defined, and they're the ones you're familiar with if you've ever looked at long term care insurance. Diabetes and high blood pressure don't interfere with these activities for the vast majority of people who've been diagnosed with them.

 

[Alexi]

Worst case, you get 10 years to take the IRA money. It may be that they can mitigate this.

It does not change the balance, if that is what you mean.

And it's not final yet.

What's not final ?

The Senate will vote on the spending bill today.

 

[Winemaker]

Looks like a real concerted effort to screw over thrifty people who used the law as it was originally written.

 

[pb4uski]

+1 doesn't seem broad at all though I couldn't find the passage that ncbill was referring to.

 

[pb4uski]

Looks like a real concerted effort to screw over thrifty people who used the law as it was originally written.

That's one interpretation... the key question is what the law originally intended... I suggest that the lifetime provisions for non-spouse beneficiaries were originally intended for the next generation... kids, nieces and nephews... and NOT for grandchildren and great-grandchildren which is what was advocated by some clever lawyers and CPAs based on how the law was originally written.

Under that view, the SECURE Act is just closing that loophole... but I'll concede that with 10 years that they probably overdid it.

 

[Alexi]

Laws are always changing. There was no federal income tax until it became law in 1913. Social Security income was not taxed until Reagan made taxing 50% of SS law and Clinton made taxing 85% of SS law.

I've contacted my representatives asking why in 2020 the IRS is increasing all standard deductions due to inflation, EXCEPT the extra over age 65 and/or blind standard deductions which have previously increased along with all the other standard deductions. So far all I've heard back are crickets.

 

[audreyh1]

Looks like a real concerted effort to screw over thrifty people who used the law as it was originally written.

The thrifty people aren’t being screwed over. Their heirs - maybe.

 

[Gumby]

Laws are always changing. There was no federal income tax until it became law in 1913. Social Security income was not taxed until Reagan made taxing 50% of SS law and Clinton made taxing 85% of SS law.

One minor quibble - Congress makes the law, not the President.

 

[Alexi]

One minor quibble - Congress makes the law, not the President.

Like most laws, my two examples became law based on the president signing congressional approved bills into law.

 

[pb4uski]

One minor quibble - Congress makes the law, not the President.

I think that I would argue that they both do... neither can do it without the other (and I'm not counting pocket vetos).

 

[Gumby]

The president either signs bills Congress passes or vetoes them (or pocket vetoes by not signing). I assume presidents agree with the bills they sign (or at least aren't willing fight over it), but the content of the law is written by Congress. It is an important distinction.

 

[FIREchief]

I'm glad I found this discussion, but not so happy about what is happening with this bill. That said, I believe that the House Secure act is much more palatable than the similar bill that has been floating around the Senate for years. That thing was a mess. If/when this passes, it will have significant ramifications for those with qualified retirement plan trusts. As many of you know, there are two types: a) conduit (very common) and b) accumulation (less common and more risky from an IRS perspective). Those with conduit trusts will likely want to replace them, as the stretch will be greatly compressed and the "forced payouts" to the trust beneficiaries over a now reduced time period will drastically reduce what little asset protection these trusts provided. I expect a strong shift to accumulation trusts, which will likely wind up with more simple qualification criteria (at the expense of reduced stretch).

 

[SecondCor521]

That's one interpretation... the key question is what the law originally intended... I suggest that the lifetime provisions for non-spouse beneficiaries were originally intended for the next generation... kids, nieces and nephews... and NOT for grandchildren and great-grandchildren which is what was advocated by some clever lawyers and CPAs based on how the law was originally written.

Under that view, the SECURE Act is just closing that loophole... but I'll concede that with 10 years that they probably overdid it.

I pretty much agree, except to the extent that I don't think Congress at the time particularly thought through the intent well enough - they could have fairly easily added language to limit stretching to the next generation and not anyone beyond that. I'm not saying that I think Congress had a different intent than what you describe; I'm saying I'm not sure they had much intent.

My parents knew about the stretch IRA loophole - they did well financially and could read, and my Mom in particular was keen on doing everything she could to optimize their finances. They did everything to take advantage of this loophole and possibly put more into their IRAs because the financial landscape encouraged that behavior - including the loophole as well as the other benefits associated with IRAs. They did set it up so their children (me and my siblings) could do the stretch IRA, and that's what we were planning on doing.

Based on my research and my own situation, I had been mulling over disclaiming some of my Dad's traditional IRA to my three kids. It appears this maneuver would have enabled them to stretch it over their lifetime, which I agree with @pb4uski is probably more than Congress intended.

I don't like the arbitrariness of the 10 year timeline, but I know historically that 10 years has been used, so I understand why it was used.

The other two things I don't like is that the SECURE Act, as well as several others, are being attached to the budget bill. I'd rather see Congress do up or down votes on individual bills rather than conglomerations. I understand why they do what they do, and I don't know how to solve it, but I still don't like it.

Second, if everyone agreed that it was a loophole, and by closing the loophole Congress could raise some tax revenue, I would have preferred that they would have closed the loophole far sooner than they did. That way my family could have been disappointed far less and been able to make adjustments sooner and more easily. As it is, even though I agree it is a loophole, it does feel like we were led on since it was around for so long (I think it's been around for several decades).

 

[HI Bill]

No mentions of annuities in the discussion here. I see a lot of potential for unscrupulous sales of iffy products to the underinformed.

 

[FIREchief]

Looks like a done deal:

https://www.planadviser.com/congress-passed-secure-act/

 

[pb4uski]

Yeah, and if the retirement planning industry is happy about it then I'm concerned about the impact on consumers.

The retirement plan industry is hailing Congress for passage of the Setting Every Community Up for Retirement Security Act, better known as the SECURE Act, which is expected to be signed by the President as soon as Friday.

 

[Gumby]

No mentions of annuities in the discussion here. I see a lot of potential for unscrupulous sales of iffy products to the underinformed.

I think you can count on that.

 

[SecondCor521]

There is an article somewhere on Yahoo! Finance this morning talking about how the SECURE Act makes it easier for 401(k)'s to offer annuities.

 

[FIREchief]

I don't think it will make much difference for the uneducated masses. Those that were at risk of being a victim of a high AUM advisor may just now be at equal risk for the guy selling complicated annuity products.

 

[foxfirev5]

IMHO Simply leveling the playing field.

 

[GrayHare]

Most here have expected taxes to go up, and this essentially is a tax increase. At least the reasons to convert to Roth remain, and perhaps have been increased.