Just last week, according to this article on the NextAvenue website, President Donald Trump unveiled a plan the administration claims will allow more Americans to retire securely. Released by executive order, the new proposal does two things that may affect the retirement future for millions of Americans, including you.
“President Trump last week issued an executive order aimed at increasing retirement security for Americans,” says NextAvenue. He told an audience in North Carolina of his belief that “all Americans should be able to retire with the confidence, dignity and economic security.” In order to accomplish this goal, the President is recommending significant changes that would dramatically affect the number of people eligible to contribute to 401(k)-style retirement plans. His proposal would also significantly affect the rules that govern Required Minimum Distribution from those accounts, usually referred to as RMDs. Some large financial services firms such as Prudential and BlackRock have voiced their support for these measures – but other retirement security experts have expressed skepticism.
So what is the President recommending? According to the article, he is ordering the Department of Labor and the Treasury Department to investigate two major rules changes. The first proposal would raise the age at which retirees must start taking their RMDs, an age presently set at 70 ½. The second set of rules modifications, one that most retirement experts agree is sorely needed, would make it easier for small businesses to offer retirement plans. The reason for this second proposal is easy to see: according to 2017 government statistics, almost 90 percent of workers at firms with 500 or more employees were offered a retirement plan, compared with barely half of those working for smaller firms.
First let’s take a look at the proposed change to RMD rules. The way the law reads today, anyone with a traditional IRA or 401(k) has to start taking money out beginning at age 70 ½. That age, say financial analysts, is based on life expectancy tables used by the IRS, since Uncle Sam is counting on getting back all the taxes you’ve deferred on those pre-tax savings. (Roth IRA’s are not subject to RMD rules since those dollars were already taxed.) Taking out those RMD amounts is vitally important, says NextAvenue, because “if you don’t, you’ll generally get socked with a penalty equal to 50 percent of the RMD amount, plus taxes you owe. Ouch.” Part of the reason for the proposed change is that life expectancy has increased, rising from about 77 when the actuarial tables were last updated in 2002 to 78 ½ today. Some financial services firms such as BlackRock have recommended boosting the RMD withdrawal threshold to 75.
According to NextAvenue, “President Trump has given the Department of Treasury…six months to consider pushing back that [RMD] age to something older — because Americans are living longer than in the past. ‘This [change] could allow retirees to spread retirement savings over a longer period of time,’ the Trump administration said.” It’s no wonder, the article says, that financial firms such as BlackRock favor the proposal: delaying Required Minimum Distribution would keep retirement funds under professional management for a longer period and cause many retirees to save more in those accounts. But others fear that the RMD delay might cause some retirees to scrimp, lowering their quality of life. These skeptics also fear that the federal government might have to find some other way to boost taxes to make up for lost revenue this change would entail.
Retirement Plans for Small Employers
There is far less disagreement about the second part of President Trump’s retirement security executive order – changing the rules to give more employees at smaller firms access to retirement accounts. As NextAvenue writes, the President “gave the Labor Department six months to see if the government could ease regulations that would allow more small businesses to offer retirement plans to their 42 million employees.” The department is also charged with finding ways to “expand access to workplace retirement plans for part-time workers, sole proprietors” and other non-traditional workers. Under the proposal, the federal government would permit small employers to set up Multiple-Employer Plans (MEPS), allowing them to escape the costs and regulatory burdens of offering their own plans. “The MEPS idea has broad support by financial services firms and many in the small business community who favored Trump’s proposal,” says the article.
Will these new rules affect you? The answer is “maybe.” If you presently work for an employer too small to offer a 401(k), the MEPS approach could provide you with a benefit that’s similar to that offered to your counterparts at larger firms. As for the proposed RMD change, this could have a significant impact if you’re presently approaching age 70 and haven’t started withdrawing funds from your 401(k) or 403(b). Depending on how President Trump’s proposal plays out, you might have more time than you thought before starting RMD withdrawals. Here at the AgingOptions blog we’ll keep an eye on these proposals and let you know if or when the rule changes kick in.
Well-Rounded Retirement Planning
As you can see, financing your retirement can be complicated – but as we always say, there’s much more to retirement than finances. Here at AgingOptions we employ a unique and comprehensive approach to retirement planning that encompasses not only finances but also the other essential elements of a retirement plan: your housing choices, your medical coverage, your legal protection and your family communication. This multi-faceted approach is the essence of LifePlanning, something only AgingOptions offers. We want to offer you the opportunity to explore LifePlanning without cost or obligation by joining Rajiv Nagaich at a free LifePlanning Seminar – an information-packed session designed to give you outstanding insight into well-rounded, effective retirement planning.
We offer LifePlanning Seminars in locations throughout the Puget Sound region. For a complete calendar, visit our Live Events page and register for the seminar of your choice. Instead of feeling overwhelmed by the rules regarding retirement, we want you to feel empowered and informed – and we know that nothing inspires retirement confidence like an AgingOptions LifePlan. Age on!
(originally reported at www.nextavenue.org)