Secure ACT & 401ks

Submitted by Vickie Intriago on Mon, 2019-08-19 16:34

Client has been dragging their feet to rollover their 401k assets to an IRA. What points are addressed in the SECURE Act with regards to qualified plans? Does the 10 year stretch apply to non spousal beneficiaries in a 401k plan? Or, does the plan administrator dictate the rules. Can they demand instant 100% depletion of the account upon the death of the ex employee with a 401k? I think this maybe the catalyst to move money to IRA. I want to make sure I am “frank” and truthful .



Submitted by Alan - IRA critic on Mon, 2019-08-19 17:16

Whatever version of a curtailed stretch becomes law, it will apply equally to all retirement plans. While the stretch would be limited in some manner, the RESA bill in the Senate includes quite different provisions than the Secure Act, so it is likely that some combination of the two treatments could be passed. That said, a qualified plan is allowed to further limit the stretch including even requiring a lump sum distribution. A direct rollover to an IRA for designated beneficiaries must be offered (but not for estates or non qualified trusts), and IRA custodians do not limit the stretch any more than the IRS does. Therefore, even though we do not yet know in what manner the stretch will be curtailed, some 401k plans may be even more restrictive and doing a direct rollover to an inherited IRA will avoid these additional restrictions.

Submitted by Vickie Intriago on Mon, 2019-08-19 18:09

I have another client with a sizeable amount in a Deferred Compensation Plan as he worked for a municipality.  He contributed on a pretax basis.   He has retired.  So, I am assuming that the SECURE Act provisions of stretching to 10 years if nonspousal would be the same as if this was a 401k plan.  Am I correct?

Submitted by Alan - IRA critic on Mon, 2019-08-19 18:16

Yes, same as 401k, with any non spouse beneficiary being able to do a direct rollover to an inherited IRA.

Submitted by Margery Schiller on Mon, 2019-09-02 15:11

Since many clients I work with now have multi-million dollar IRAs, there heirs will be significantly negatively impacted by this proposed law if the Inherited IRA payout is 10 years. It will raise tax brackets unless heirs are already in highest one. Bad law. Push your representative to oppose it or change payout period to at least 20 years to be more reasonable. 

Submitted by Herm Brames on Tue, 2019-09-03 19:16

It is reported that Senator Pat Toomey, Republican from PA has placed a “HOLD” on the subject Bill in the Senate because of the negative impact on non-spouse heirs ( Senator Ted Cruz for other reasons) and Speaker  McConnell has refused to bring the Legislation to the floor of the Senate without unanamious consent of the members.  Senator Toomey is the only Senator I have written who has responded to me specifically about the Secure Act.  I encourage everyone to be impacted by this legislaltion to contact Senator Toomey immediately and implore him to continue to stand pat and protect the promise Congress made to investors regarding non-spouse  beneficiaries inheriting retirement benefits. 

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