Good News and Bad News About the SECURE Act

By Stephen J. Silverberg
New York Elder Law Attorney

On May 23, 2019, the U.S. House of Representatives passed a bill that would significantly change estate planning for retirement benefits from qualified plans and IRAs. It also contains provisions that impact Elder Law planning.

The Setting Every Community Up for Retirement Enhancement Act of 2019 (the “SECURE Act”) received overwhelming support in the House, passing 417-3. The SECURE Act extensively amends the Internal Revenue Code relating to retirement benefits, including provisions that apply during the life of the account owner as well as provisions applicable to Retirement benefits inherited by the account owner’s beneficiaries.

There is a similar bill pending in the Senate, the Retirement Enhancement and Savings Act (“RESA”). However, some provisions of RESA substantially differ from the SECURE Act.

The SECURE Act raises the age at which a participant must begin distributions to age 72 and it allows contributions to an IRA after beginning distributions. It also eliminates the ability of a beneficiary to stretch the payment of inherited benefits over their life expectancy. Instead, they must withdraw the entire account balance within 10 years after the account owner’s death. RESA requires the account to be distributed within 5 years of death but retains the ability to stretch the first $400,000 of a retirement account.

The SECURE Act allows certain beneficiaries to stretch the payment of the retirement account using the current rules. These beneficiaries include a surviving spouse, a minor child of the account owner, a disabled beneficiary and a chronically ill beneficiary. However, with a minor child, the retirement account must be distributed within 10 years after the child attains the age of majority.

An additional provision of the SECURE Act fixes an unintended consequence of the 2017 Tax Act. What came to light was the taxation of benefits paid to families of soldiers killed in action. The VA pays a Dependency and Indemnity Compensation (“DIC”) benefit. DIC is a tax-free monetary benefit paid to eligible survivors of service members who died in the line of duty or from a service-related injury or disease. The Department of Defense also pays under a Survivor Benefit Plan (“SBP”). SBP is a lifetime annuity based on a percentage of pay (adjusted for inflation) and is paid to an eligible beneficiary. However, there is an offset for the Department of Defense benefits paid while also receiving Veterans Affairs benefits. This is sometimes called the Widow’s Tax. The SBP is often assigned to the surviving children to avoid the reduction.

When the SBP is paid to children under 18 (or 24 if a student), it is subject to the Kiddie Tax. Before 2018, the Kiddie Tax was based on the parent’s income tax rate, and it was estimated the tax rate was between 12%-15%. The 2017 Act raised the Kiddie Tax rate to 37% on unearned income over $12,500; surviving children pay a confiscatory tax. A provision was added to treat the SBP as earned income for Kiddie Tax purposes.

Also, the SECURE Act originally allowed 529 plans to pay for home schooling but the provision was removed before the vote on the bill.


Section 204 of the SECURE Act gives a safe harbor to 401(k) plan sponsors who offer an annuity option. It is seen as beneficial as many seniors feel they will run out of money during their lifetimes. (something I repeatedly heard while testifying on behalf of NAELA before the ERISA Advisory Council of the Department of Labor). This means if an employer picks an annuity provider, and it goes out of business or rips off workers, they could not sue the employer afterward.

That could incentivize companies to find fly-by-night annuity providers that give good deals to the companies for business, making their money by ripping off the firm’s workers before filing for bankruptcy. While annuities from retirement vehicles are exempt from the DRA requirement that they be actuarially sound, they still need to add the state as a potential payee upon death to be DRA compliant.


This is where it gets interesting. Congress wanted the bill passed before Memorial Day, especially for the Kiddie Tax elimination. To that end, Sen. Grassley agreed on a floor vote of the SECURE Act passed by the House so it could be signed before the president left for Japan. The vote was blocked by Ted Cruz, who objected to the elimination payment for home schooling from a 529 plan.

Having missed the window of opportunity, it is not certain what the Senate will do now. It may proceed with RESA and try to work out the differences with the House.

Ultimately, the legislation signed into law may combine the SECURE Act with provisions of RESA, or both bills may die if consensus is not reached. However, given the overwhelming bipartisan support for the SECURE Act in the House, it seems safe to assume some combination of the SECURE Act and RESA will be passed by the House and Senate.

Our office will be carefully following the progress of these two pieces of legislation and keep you posted on what’s going on.

About the Author
Stephen J. Silverberg is nationally recognized as a leader in the areas of estate planning, estate administration, asset preservation planning, and elder law. He is a past president of the prestigious National Academy of Elder Law Attorneys (NAELA), and a founding member and past president of the New York State chapter of NAELA.