You Asked, So We’ll Answer

FOQ: The SECURE Act passed. Anything I need to know?

Short: Not really.

Long: Despite all the hype, the SECURE Act impacts most people very little. Here are the two most important provisions:

IRA contributions and distributions. The minimum age for required distributions from your IRA increases from 70 ½ to 72, in recognition of our increasing life expectancy. However, if you turned 70 ½ during or before 2019, you’re still on the hook to take a distribution for 2019 and 2020. And now there’s no longer a maximum age for traditional IRA contributions, which was previously capped at 70 ½.

No more Stretch IRAs. Unless it comes from a spouse or was established before 2020, an inherited IRA can no longer be depleted over your lifetime. The new law says that the entire balance of the account must be withdrawn (and thus, taxes must be paid) within ten years.

FOQ: What’s with annuities in 401(k)s now? Is that good?

Short: Absolutely not.

Long: The bill was lobbied hard by the insurance industry. And they got what they wanted: annuities within 401(k) plans. It’s a big loss for investors, who will be tempted by promises of lifetime income and guarantees. But the only guarantee is higher costs for something you can do better without annuities.

FOQ: So is this new law good or bad?

Short: Not so good.

Long: The age increase for IRA distributions and contributions is good. But the elimination of Stretch IRAs and the addition of annuities to 401(k)s are not good. In fact, the annuity deal is terrible. Final verdict…two thumbs down.

Cheers,

John, Bill, Mark & Melanie