Congress Has a Plan to SECURE Your Retirement
The Setting Everyone Up for Retirement (“SECURE”) Act passed in the House of Representatives in May with a 417-3 vote. The Senate has a similar bill with a slightly pithier title under consideration called the Retirement Enhancement Security Act (“RESA”). If I didn’t lose you in the first two sentences, stay with me and I’ll tell you why you should care.
The purpose of the legislation is probably clear from the name – to address a growing national concern that many Americans are not able to save enough for retirement. You might be thinking that you are not one of these people, but I’ll bet there is more that you could be doing. Regardless, there is momentum toward some sort of retirement reform, so it’s worth considering some of the SECURE Act provisions for those nearing retirement or really anyone with a retirement account.
The SECURE Act would:
· Permit penalty-free withdrawals from retirement plans for birth and adoption – Parents would be able to withdraw up to $5,000 from a retirement plan to cover qualified birth and adoption expenses.
· Increase 529 account flexibility – Students would be able to use 529 plan funds for qualified student loan payments up to $10,000 per plan beneficiary. This would permit students to continue to contribute to their 529 plans throughout college and use any leftover funds to repay student loans with tax-free money.
· Impact the use of inherited retirement accounts as an estate planning tool – Many people plan to pass on large IRA or 401(k) balances to children or grandchildren so that the money can continue to grow tax-deferred with RMDs stretching over the beneficiary’s life expectancy. Under the SECURE Act, the beneficiary would be required to draw down the entire balance within 10 years of inheritance. This would be a double whammy of shortening the time period for tax deferred growth while increasing the tax burden on larger RMDs during that time.
· Raise the age for required minimum distributions (“RMDs”) – Current law dictates that you begin making RMDs when you reach age 70.5. The SECURE Act raises that age to 72, allowing your full account balance to continue to grow tax-deferred over a longer time period.
· Remove the age limit for contributions – The SECURE Act proposes to repeal the age limit of 70.5 for contributions, enabling older workers to continue to save.
· Expand small employer access to retirement plans – The legislation would effectively enable small employers to join open, multiple-employer plans that have lower costs and fewer fiduciary concerns than exist in today’s small employer plans (e.g., SIMPLEs and SEPs).
While there is clearly more work to be done before some version of these bills merge to become law, legislative experts say that there seems to be bipartisan support (can you believe it?) for new retirement law. So, it’s probably not a bad time to revisit your financial plan and consider how these changes might impact your education, retirement and estate goals.
Don’t have a plan? Well, to quote Antoine de Saint-Exupery, “A goal without a plan is just a wish.”
Feel free to contact me if you’d like to start planning for your financial, education and/or retirement goals.