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What to Expect from President Trump's SECURE Act

The opinions expressed by columnists are their own and do not necessarily represent the views of
AP Photo/ Evan Vucci

 WASHINGTON - “Like grave robbers opening King Tut’s tomb, Congress can’t wait to get its hands on America’s retirement account assets,” the Wall Street Journal warned taxpayers last year.


The warning was contained in an article written by Philip DeMuth, author of “The Overtaxed Investor: Slash Your Tax Bill and Be a Tax Alpha Dog.”

He was writing about the House-passed Setting Every Community Up for Retirement Enhancement Act, known by its less than honest acronym, “SECURE.”

If you have laid aside investment funds for your kids to inherit to help them out after you’ve passed away, there will be precious little left for them once the IRS gets its hands on your hard-earned money.

That’s because the Secure Act President Trump signed into law earlier this month “changes the way beneficiaries will receive money from inherited retirement accounts.”

This is because the new rules, according to Market Watch, “say beneficiaries of qualified retirement accounts, such as individual retirement accounts (IRAs) and 401(k) plans, need to withdraw all of the money out of those accounts within 10 years, instead of over their life expectancy as was previously allowed.”

“There are no required minimum distributions within that time frame, but the account balance must be zero after the 10th year,” the financial website tells us.

“Stretching the withdrawal over the beneficiary’s life expectancy — the so-called stretch IRA provision — meant paying less in taxes, whereas the new rule threatens to result in higher tax bills, especially if the inheritor is in [his or her] peak earning years,” Marketwatch says.


Parents set aside earnings over their working years to help them through their retirement, health care and deal with their elderly needs, while their investments can grow to the point where they’re able to leave an inheritance for their kids.

“A parent could die with the knowledge that, whatever vicissitudes their children might experience in life, they won’t have to worry about retirement,” the opinion piece points out. Or if one or more of their children suffer from some illness or disability, they will have enough income to care for their needs.

But “Congress wants to kill this,” DeMuth’s piece points out. “The Secure Act gives nonspouse beneficiaries 10 years to pull out all the money in an IRA. The effect would be to make more of an IRA subject to higher taxes sooner, as [tax] distributions are made in supersize chunks.”

“As much as one-third more of an inherited IRA would get gobbled up by taxes than under current rules. When the Tax Cuts and Jobs Act expires in 2025, taxes will rise across the board,” DeMuth writes.

Now that the president has signed the new tax system into law, the stage will be set for a brutal tax system in the next decade.

The Secure Act “would be an estate-planning catastrophe for people with significant IRAs,” DeMuth continues in his blistering piece for the Journal. “It would take sensible planning done up until now and stand it on its head. In the past, an IRA owner might have established a trust if his intended beneficiaries were young. 


Under the Secure Act, IRAs will no longer be subject to annual required minimum distributions, so an IRA of $1 million placed in a trust for the benefit of an 8-year-old could conceivably receive nothing for nine years.”

“Then at year 10, by law, the IRA would have to pay out everything. Now the young beneficiary turns 18, and suddenly he gets a windfall. With a decade of additional compound growth, the original IRA could have grown to $2 million or more. All is delivered in one year, so most of it is taxed in the highest brackets.”

The dismal result, DeMuth writes, is that this would “shoehorn the distributions into higher brackets, accelerate the collection of tax revenue, and eliminate the ‘problem’ of the inherited IRA. Best of all, politicians would get to accomplish all this without voting to raise taxes.”

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