Brian Graff, CEO of the American Retirement Association, who has been tracking the legislation closely, said the SECURE Act will help millions of Americans save and save more for retirement.
Two controversial provisions held the bill up in the Senate prior to its attachment to the spending bill: the elimination of the stretch IRA and the favorable treatment given to annuities inside of retirement accounts.
The stretch IRA provision is the big revenue generator of the bill. It would eliminate most — but not all—beneficiaries' ability to stretch distributions from IRAs and defined-contribution plans over their life expectancy — excluding spouses who can still take advantage of stretch strategies.
Instead of having nearly 30 years to take distributions, the SECURE Act would require all distributions to be taken by the end of the 10th year following the account owner's death.
That not only shortens the time period tax-advantaged accounts can grow, but money in Roth accounts and traditional IRAs or 401(k)s will have to be distributed faster to heirs and beneficiaries, reducing the tax-deferred growth benefits of inheriting an account.
As important, because the account must be distributed over a 10-year period, it'll be taxed at higher rates than if the distributions were spread out over 30 years. This is because many beneficiaries will be in their peak earning years when taking the distributions and adding large taxable distributions from IRAs onto their current income might bump them into a higher tax bracket.