The SECURE Act: Will Retirement Get Easier?
The Secure Act was approved by the House of Representatives and is expected to pass in the Senate. The Trump administration has not publicly spoken about the bill, but the lobbyists who support it say they expect it will be signed into law.
Why the SECURE Act?
The idea of the SECURE Act is to make it easier to save for retirement and to get more people saving and saving more.
And, research suggests that the legislation is much needed. Americans are not financially prepared for retirement:
- A Bankrate survey found that more than one in five working Americans aren’t saving for retirement
- According to the Federal Reserve, a full quarter of non-retired adults have no savings or pension whatsoever
- The Bureau of Labor and Statistics reports that 42% of private sector workers don’t have access to a retirement savings plan and the news is much worse for part time workers and employees at small firms
The SECURE Act passed with a practically unanimous margin of 417 for and 3 against in the House. You can review the SECURE Act in full on Congress.gov.
The Good News About the SECURE Act
The bill includes many different provisions — mostly good news, including:
Small Business Plans: The bill makes it easier for small businesses to band together to offer 401(k) plans.
401ks can be too expensive for small operations to offer themselves. Now those costs can be shared across different businesses and this will give more employees access to tax advantaged retirement saving opportunities.
Retirement Benefits for Part Time Workers: Right now part time workers are not eligible for retirement benefits from employers. The bill will allow long term part time employees to participate in 401k plans.
Keep Saving for as Long as You Want: The bill will allow you to keep making contributions to your traditional IRA or Roth IRA for as long as you want. (Right now you have to stop at age 70 1/2.)
This is great news as more and more people are working longer. According to the Bureau of Labor Statistics, about 19% of individuals between the ages of 70 and 74 are still in the workforce and that number is growing.
A couple, for example, could keep socking away another $14,000 a year, using spousal IRAs.
Raise the Age for RMDs: Currently you must start taking your Required Minimum Distributions (RMDs) from certain retirement accounts at age 70 1/2. The bill will raise the age for RMDs to 72.
This is great news for people who don’t need to tap their retirement accounts to cover expenses. You basically get 18 more months of tax-deferred growth.
Annuities: Annuities will now be an investment option in employer sponsored 401k plans. This will help people who are worried about retirement income and it may prove to be a very popular option.
According to research from the Employee Benefit Research Institute, 80% of 401(k) plan participants would like to put some or all of their balances in a guaranteed lifetime income option like an annuity.
Incentives to Businesses to Offer Auto Enrollment: The SECURE Act gives employers tax credits and other incentives if they offer retirement plans with automatic enrollment. This is designed to increase participation — get more people saving.
Future Retirement Income Reporting: Pre retirees enrolled in a company retirement plan will be able to receive an annual statement that shows how their current balance would break down into monthly paychecks. This is designed to help retirees think of their retirement savings as potential income rather than just a lump sum.
Expands 529 Account Usability: With the SECURE Act, 529 accounts could be used for apprenticeships and qualified student loan repayments of up to $10,000.
The Bad News in the SECURE Act
Depending on your perspective, there is also some bad news in the SECURE Act.
Inherited IRAs: Currently the law allows for non spouse heirs to spread or stretch out RMDs from an inherited IRA over their lifetime.
The SECURE Act mandates that IRAs that are passed on to non spouse beneficiaries must be distributed within 10 years (except some cases when the heir is a minor or a child with disabilities).
The change will cause heirs to pay more — in some cases quite a bit more — in income tax.
If you have been saving into an IRA and hope to pass that account onto heirs, you may want to talk with a tax accountant or a financial advisor about alternate strategies.