The Insecure Act

January 17, 2020

As 2019 turned into 2020, US citizens were hit with a pretty important piece of legislation that is providing another opportunity for advisors to step up to the plate and advise their clients. Not all financial advisors are created equal. Some may simply sell a product, while others work in an ongoing relationship to meet their clients' needs and adjust their plan according to economic and personal changes. As you are meeting with your advisor for your regular review in 2020, take note of whether they discuss this new legislation and its potential impact on you.

The new piece of legislation is known as The Secure Act. I would argue that its title, as with most legislation, is being marketed as a positive thing for society. There are a few aspects that are slightly positive for some people but for many, I believe there are big negatives. It should probably be called The Insecure Act! There are two things that bring me to this conclusion:

  • the ability for work retirement plans to offer annuities and
  • non spouse beneficiaries for retirement accounts being required to fully redeem accounts within 10 years after inheriting them (it could previously be stretched over the lifetime of the non entity beneficiary).

My issue with the annuity part is that I have seen many people get taken advantage of through annuity sales. When the situation merits it, I may recommend an annuity as a part of our clients’ customized financial plans, but my concern with The Secure Act is that the proper analysis will not take place, and clients will opt into annuities inside their retirement plans that are not in their best interest.

Issue #2, in my opinion, is the bigger of the two issues. Instead of allowing beneficiaries to withdraw retirement assets over their lifetimes, the inherited accounts must be fully withdrawn over 10 years. As all IRA distributions are taxable as income, this will create significantly higher incomes for beneficiaries, and, as you know, the higher the income the higher the tax rate. According to the Congressional Research Service, the change from distributions over a lifetime to a 10 year period for inherited retirement accounts has the potential to generate about $15.7 billion in tax revenue over the next decade. So, what does this have to do with you? Well, that $15.7 billion is going to be funded by taxes from the money that you, your kids, friends, and other loved ones may inherit.

As always we are here to help. Please reach out to me or our team here at Jones Financial Group for assistance any time you need it. For highlights of the Secure Act, please view here. Secure Act



This article represents the opinion of the author and not LPL Financial.  It is meant for educational purposes only.  It should not be considered investment advice, nor does it constitute a recommendation to take a particular course of action. Please consult with a financial professional regarding your personal situation prior to making any financial related decisions.