It was supposed to be an all-in, surefire thing back in May when the Setting Every Community Up For Retirement Enhancement Act passed the House of Representatives in an overwhelming 417-3 vote of support.
Proponents of the bill had hoped for a quick passage in the Senate, but two months later, the proposed retirement legislation seems destined to hang in limbo for the remainder of the summer due to a Republican hold on the bill in the Senate and the budget agreement closing off additional measures.
Among the GOP senators’ concerns are omissions to the bill that would have expanded the use of 529 education savings plans to include home schooling, private and religious schools. While other conservative senators work to get their colleagues onboard with the bill, the summer session is quickly winding down and with it, any hopes of getting the legislation passed before fall.
What Advisors Need To Know
Retirement expert and Director of Retirement Research for the Carson Group Jamie Hopkins unpacks the contents of the proposed legislation.
The biggest change planners and advisors will notice in the SECURE Act is the elimination of stretch IRA provisions.
“The stretch IRA provisions for financial planners – that’s the single biggest change across the board,” Hopkins said. He believes the elimination of stretch IRA provisions will be an opportunity to review clients’ plans, if advisors are proactive. He compares the opportunity with stretch IRAs to a section of the TCJA that hasn’t been widely utilized by advisors.
“It’s going to be kind of like 199A of the Tax Cuts and Jobs Act. To me, that’s the single biggest opportunity for advisors to add value to planning from the TCJA and I say now, a year-and-a-half later that very few people in the advisory world are up-to-date on that. Very few firms have the support in place to help advisors be successful there.”
To make sure the opportunities the SECURE Act creates for planning don’t get missed, Hopkins encourages advisory firms to be proactive about making changes for the SECURE Act.
“There’s a lot of planning opportunities that I’ll just say, I don’t know if firms are being proactive enough here,” he said.
Hopkins and his team at Carson Group are already taking steps to prepare for the SECURE Act, even though it hasn’t been adopted yet.
“We’ve already done three trainings on how the SECURE Act would impact people,” he said.
He adds Carson has developed calculators to determine the tax impact from the SECURE Act on plans and to begin assessing where clients will need help, if the bill is passed.
Another item that Hopkins says advisors should note from the SECURE Act is that inherited (stretch) IRAs will be subject to not only more taxes, but higher ones, as well.
Hopkins says this isn’t a new concept. “From a public policy standpoint, this is actually pretty consistent with existing law. Three or four years ago, the Supreme Court said inherited IRAs are not retirement accounts. So, they actually lose the creditor protection that traditional retirement accounts have once they’re inherited.”
In addition to aligning some rules for consistency, the SECURE Act would allow employers to offer annuities. This too, could be a unique opportunity for advisors, said Amy Ouellette, director of retirement services at Betterment for Business. “If an advisor is working with someone, it might require looking at those plans closely.”
Lastly, current required minimum distribution law requires (most) individuals to begin taking their RMD at age 70½. The SECURE Act would delay that to age 72 while the RESA Act (the Senate’s version of SECURE Act) would push it back to age 75. Depending on the approach Congress takes to get the legislation passed, the age requirement could change in favor of one bill or the other.
Experts are cautiously optimistic that the SECURE Act will pass the Senate before year’s end.
“I have no reason to believe at this point that the SECURE Act won’t pass this year,” said Hopkins.
However, what that passage will look like is anyone’s guess.
“They’ll probably go back through more traditional routes and send it through committee, etc., or pass RESA and then work out some of the difference between the two bills,” Hopkins speculates. “There are still a lot of routes that this could take right now, but in short form the expectation is that we’ll see these two bills done, in some sense or another, by the end of the year.”
Ouellette believes that SECURE and RESA are “close enough” that the best parts of the two bills can be merged. “I’m interested to see what it will take to get it across the finish line,” Ouellette said, adding the quick passage of the bill in the House was “encouraging”.
However, Senate Majority Leader Mitch McConnell, R-Ky., would like to move the SECURE Act along by way of unanimous consent in an effort to preserve floor time for other issues. That means that the SECURE Act would have to be added on to another piece of legislation later this year to move forward.
Proponents will be looking for bills to attach the SECURE Act to in the coming weeks, said a source supporting the legislation. There is a sense of urgency to get the SECURE Act passed this year, the source added. Traditionally, legislation grinds to a halt during a presidential election year, as neither side wants the other to claim victories to campaign on.
AdvisorNews Managing Editor Cassie Miller may be reached at cassie.miller@Adnewsfeedback.com. Cassie has an extensive background in magazine writing, editing and design. Follow her on Twitter @ANCassieM.