There’s still a lot of buzz among financial and retirement professionals about the Securing a Strong Retirement Act that is working its way through Congress on a (relatively) rare wave of bipartisanship. The financial press has taken to calling this legislation “Secure Act 2.0” because SSRA is not a good acronym.
A word on acronyms: Congress is fond of coming up with catchy acronyms (an acronym is defined as “a word formed from the initial or letter or letters of each of the successive parts or major parts of a compound term”) for legislation so that the law can be more easily remembered by the populace. For example, the PATRIOT Act stands for “Providing Appropriate Tools Required to Intercept and Obstruct Terrorism.”
Among the most buzzworthy of proposals in the SSRA is that to further delay the requirement to take minimum distributions (RMDs). In the original SECURE Act, this was done relatively easily – the age for RMDs was changed from 70 ½ to 72 for those born on or after July 1, 1949. Not being able to let well enough alone, the proposal in SSRA to extend RMDs to age 75 has no clear line of demarcation, rather it is phased in over a ten year period. Here’s how the law would phase in the increased age for taking required distributions:
Age in 2021 | Age to start RMDs
72 | 72
66 – 71 | 73
64 and 65 | 74
63 or younger | 75
One thing that legislators do not want to do is to make any changes in the law that you or I could easily understand.
Another buzzworthy aspect of SSRA is how some of the proposed changes are going to be paid for. There’s got to be a trade-off because (as they would have us believe) there’s no such thing as a free lunch. A few years ago, when the SECURE Act was being crafted, how the beneficial changes (e.g., extending RMDs to age 72, etc.) would be paid for was not discussed until the last minute. At that last minute, the law was changed to eliminate the “stretch IRA”. This did not affect those who were planning on leaving their IRA (or TSP for that matter) to their spouse, or to someone who was less than 10 years younger, but it did do away with the ability of other beneficiaries (e.g., children, etc.) to stretch IRA payments over their lifetime. For these “non-eligible designated beneficiaries” the law was changed to require that they empty out the inherited IRA within 10 years. This disrupted the estate planning strategies of many individuals.
I expect that we won’t know how SSRA will be paid for until near the end of the game. Your guess is as good as mine as to what benefits will be curtailed in order to pay for the new benefits that are being extended. Don’t fail to pay attention to the changes so that you can act, if needed, to avoid adverse consequences.