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NEW RETIREMENT SAVINGS ACCOUNT BILL LIKELY TO PASS THIS YEAR

NEW RETIREMENT SAVINGS ACCOUNT BILL LIKELY TO PASS THIS YEAR

As a result of less employer-sponsored pension plans and the desire of Congress to encourage savings for retirement, it is anticipated that Congress will pass the Setting Every Community Up for Retirement Enhancement (SECURE) Act later this year as it has bipartisan support. It will be particularly beneficial to small businesses and their employees that do not have 401(k)s.

The SECURE Act gives employers a new tax credit up to $500 per year to reduce the cost of establishing a new 401(k) plan that would give the employer an automatic enrollment credit.

The SECURE Act is different than typical 401(k)s in several ways:

  • Part-time employees can participate;
  • Contributions can be made even after age 70½;
  • The stretch payout period for a beneficiary would be limited to a much shorter time than presently permitted.

The major difference in the House of Representatives and the Senate bills is the stretch period for the beneficiary of a retirement account. Presently, a retirement account beneficiary (who is not the spouse – such as the child of an employee) can elect to stretch the payout distribution from the retirement account over the life expectancy of the beneficiary. This is often a great benefit as the funds held in the account often grow deferring taxation until a much later date. For example, if a child inherited $100,000 from a parent’s retirement account and the child had a fifty (50) year life expectancy from the time of inheritance and chose to take the maximum stretch (annual payout from the retirement account over his or her life expectancy), then such child would only be paying income tax on the $2,000 during the first year when they made their required minimum distribution. Each year thereafter, there would be required minimum distributions (RMDs) based on the life expectancy of the beneficiary and the amount held in the retirement account in addition to the amount withdrawn. In contrast, if the child immediately withdrew $100,000, then there would be income taxation on the $100,000 withdrawn. The House bill reduces the stretch payout period to ten (10) years (so, in the example above, the child would be required to take out at least $10,000 annually and be taxed on that amount) and the Senate bill reduces the payout period to only five (5) years (in our example, this would result on income tax on the $20,000 withdrawn the first year). Obviously, the bill would encourage savings for retirement for the employee, but the government would receive income taxes sooner than presently under existing retirement accounts from beneficiaries such as children who can stretch payments over their lifetime (and this would not change for those type of accounts). If the bill passes and stretch is desired, then it is anticipated estate planning attorneys will advise that unitrusts within the employee’s Will be named as the beneficiary of the employee’s Will for the life of the child.

If interested in learning more, consider attending our next free “Estate Planning Essentials” Workshop on Thursday, May 23, 2019 at 1:00 p.m. by calling us at (214) 720-0102 or signing up online at www.dallaselderlawyer.com or by clicking here. We are also having a Facebook Live Event on Saturday, May 4, 2019 from 10:00 a.m. to 11:00 a.m. Attendees of the live webinar (and the “Estate Planning Essentials” workshop) will be eligible for a free one hour vision meeting with Michael B. Cohen. Please RSVP to the “Facebook Live Event” by clicking here and then click “going” to submit your questions for Michael B. Cohen (you must be logged in to Facebook in order to RSVP). You may also submit your questions for the “Facebook Life Event” by clicking here.



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