Congress recently passed a new piece of legislation known as the SECURE Act (yes, it’s an acronym – we’ll explain in a moment) and President Trump signed it into law just days ago as part of the federal government’s new spending bill. One article we read called it “the most sweeping retirement bill since the Pension Protection Act of 2006” and “the biggest retirement bill in more than a decade.” Other experts say the SECURE Act will inevitably affect most retirement savers, some for better and others for worse. In the interests of keeping you better informed, we turned to this article just published on the MarketWatch website to try to make sense out of the new law, which takes effect January 1st.
The SECURE Act is Designed to Strengthen Retirement Security
MarketWatch reporter Allessandra Malito wrote the piece analyzing the SECURE Act. (Just to clarify, “SECURE” stands for “Setting Every Community Up for Retirement Enhancement,” a mouthful which we think only Congress could come up with.) The law, says Malito, “puts into place numerous provisions intended to strengthen retirement security across the country,” including a new solution for the millions of workers who don’t have access to workplace retirement accounts. “It offers small businesses tax incentives to set up automatic enrollment in retirement plans for its workers, or allows them to join multiple employer plans, where they can band together with other companies to offer retirement accounts to their employees in the first place. The bill also eliminates the maximum age cap for contributions to traditional individual retirement accounts.”
But is the law really all that sweeping? “Not all retirement experts are certain the bill will have much of an impact,” writes Malito in her MarketWatch piece. Alicia Munnell, director of Boston College’s Center for Retirement Research, told MarketWatch, “The SECURE Act is a nice thing — anything we can do on a bipartisan basis in this day and age is something of value — but my sense is the changes in the act are really quite modest.” Some financial advisers think the bill might actually hurt some savers unintentionally.
A Few Key Provisions of the SECURE Act – Annuities, RMD, Better Access to Savings Plans
There’s quite a lot to cover in this new law, and we lack the space for greater detail, but here are a few provisions we found most pertinent.
- Annuities Offered Within 401(k) Plans: Under the SECURE Act, employers will be allowed to offer annuities as investment options within 401(k) plans. “Currently, employers hold the fiduciary responsibility to ensure these products are appropriate for employees’ portfolios, but under the new rules, the onus falls on insurance companies, which sell annuities, to offer proper investment choices,” says Malito. While annuities can be helpful in retirement, providing guaranteed income over the course of a retiree’s lifetime, they can also be complex and come with high fees. Critics of the SECURE Act say that this provision represented “a major win for the insurance industry, which lobbied for the bill.”
- Increasing the Age for RMD Withdrawals: As we alerted AgingOptions blog readers and radio listeners just last week, the former rules required most people with tax-deferred retirement accounts to start taking required minimum distributions (RMD) in the year they turned age 70 ½. As Malito explains, “The SECURE Act increases that age to 72, which may have tax implications, depending on where the account holders fall in their tax bracket in the year they withdraw. The 70 ½ age was based on life expectancies in the early 1960s, the House said, and had not been updated since.” But there’s an important caveat: the rule change does not apply to people who turned 70 ½ during 2019. You still need to take your RMD this year, or by April 1, 2020 at the latest.
- Increasing the Age for Making IRA Contributions: Until the passage of the SECURE Act, the maximum age for traditional IRA contributions was 70 ½, but that has now changed. “As Americans live longer, an increasing number continue employment beyond traditional retirement age,” the House Committee on Ways and Means said in a summary of the bill. These folks will now be able to keep on contributing to their IRAs.
There are other SECURE Act provisions that may affect you. For example, if you inherit an IRA from someone other than your spouse, the new law requires a faster schedule of required withdrawals. If you work for a small employer – or if you own a small business – the bill gives small companies greater ability to band together even if they’re not in the same industry to offer employee retirement plans, which can now include a larger number of part-time workers.
The law also adds incentives to businesses that sign their workers up automatically, because many retirement experts believe auto-enrollment is one key to greater retirement plan participation.
Questions About Retirement? Come to a LifePlanning Seminar
New laws may make it easier for more people to plan and save for retirement, but ultimately, it’s up to each of us to make it happen. In order to prepare successfully for your retirement years, you absolutely must take a much wider view than to focus merely on your money, because money alone is no guarantee that you’ll experience the kind of retirement you’re hoping for. Housing will also be a key consideration, as will medical coverage as part of your retirement strategy. You may need to set up a legal framework to protect your loved ones and your assets while allowing you to access the care you need. Finally, since aging is a family affair, your family has to be in the picture. Is there one approach that blends all these together into an effective retirement strategy?
Fortunately, the answer is yes: it’s called LifePlanning, and only the professional team at AgingOptions offers it. We invite you to invest just a few hours and find out more by attending a free LifePlanning Seminar with Rajiv Nagaich, and allow Rajiv to open your eyes to retirement planning that accomplishes all you need to achieve the retirement of your dreams. You’ll find a calendar of currently scheduled seminars here on our AgingOptions Live Events page – then simply register for the free seminar of your choice. It will be our pleasure to meet you at an AgingOptions LifePlanning Seminar. Age on!
(originally reported at www.marketwatch.com)