Assessing the Damage Done by the SECURE Act
On January 3, 2020, at approximately 12 noon ET, this article was corrected. The author of the Wall Street Journal article was changed from Natalie Choate to Laura Sanders.
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The Grinch who stole Christmas is alive and well this year – in the U.S. Congress. Our representatives and senators passed a bill that negatively affects the middle and working class by changing the rules of passing an IRA to one’s heirs. Now adult children who inherit IRAs will be required to drain them within 10 years and pay all the taxes on the distributions and future earnings.
The Setting Every Community Up for Retirement Enhancement (SECURE) Act, which changes many of the rules of U.S. retirement laws, was approved almost unanimously (417-3) by the House of Representatives and the Senate (81-11). South Dakota's Representatives Dusty Johnson and Senators John Thune and Mike Rounds all voted for the bill. Despite its name, many of the new law's provisions are anything but retirement "enhancements."
I wrote about the SECURE Act in June, as did other financial journalists, but it hasn't received widespread attention. Despite its heavy bipartisan support, it isn't necessarily a retirement boost for middle and working class savers.
This revision of long-standing IRA rules is especially unfair to parents who banked on the reliability of those rules. Many of them did Roth conversions and paid the tax due on a traditional IRA, with the intention of leaving the portion of the IRA they did not use themselves as a tax-free gift that could grow over the years and support their children's retirement.