Retirement-Focused SECURE Act Passes House with Broad Support

May 2019 | Article

On May 23, the U.S. House of Representatives passed the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) by a vote of 417 – 3. Despite the large margin of support in the House and similar legislation pending in the U.S. Senate, the SECURE Act is not necessarily a sure thing to pass the Senate and become law—at least as currently drafted.

Why would there be a problem in the Senate?

The version the House passed was based on an earlier version of the SECURE Act that appeared headed for quick approval by the Senate. However, late changes made to the legislation that passed the House removed certain provisions favorable to home-schools, private elementary and secondary schools and religious schools, causing key Senators to balk at supporting the newly changed version of the legislation. Consequently, Senate consideration may be drawn out. Senators may try to modify the House passed version by adding back some or all of the late change provisions that were removed. Whether a revised bill can garner the votes needed to pass the Senate is anyone’s guess. Any change made, and passed, by the Senate will require that the SECURE Act return to the House for reconsideration.

The SECURE Act includes 29 separate provisions dealing mostly with retirement plan issues. Provisions with the greatest potential benefit for taxpayers include those that would:

  • Increase the mandatory age for required minimum distributions to 72 (currently 70 ½)
  • Expand small employer access to multi-employer and pooled employer retirement plans
  • Permit penalty-free distributions from retirement plans for birth or adoption of a child
  • Repeal the age limitation (currently age 70 ½) for contributing to a traditional IRA
  • Allow more part-time workers to participate in 401(k) plans

In addition, the SECURE Act passed by the House would essentially repeal the “kiddie tax” changes made by the Tax Cuts and Jobs Act so that unearned income of children would not be taxed at trust tax rates. Children would once again be subject to tax on unearned income based upon the higher of their tax rate or their parent’s rate.

To generate revenue for the government to offset the tax savings provisions, the SECURE Act would significantly modify the inherited retirement plan distribution rules to accelerate the distribution of inherited accounts for many large IRAs and retirement plans by requiring most beneficiaries to deplete the account over a 10-year period following the account owner’s death. The government would also generate additional revenue from taxpayers through increased penalties for failure to file tax returns.

Please contact your Eide Bailly professional or Mel Schwarz, Director of Legislative Affairs in our Washington, D.C. bureau, with questions related to the SECURE Act or other legislation pending in Congress.

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