I spent the morning reading through the highlights and some parts of the actual text of the bill on the Congress.gov website. I’m liking most of what see – many of these changes seem to be logical updates to policies that have needed some attention for a while. In a nutshell, the bill aims to improve retirement policies, specifically having to do with contributions, distributions, participation, and plan establishment. Below are some highlights including items I think my readers can specifically relate to.
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1. The age for RMDs (Required Minimum Distributions) increases from 70 ½ to 72 for people turning 70 ½ after December 31st, 2019. RMD rules have confused my clients for years and specifically those with large IRA account balances are shocked by the tax bill generated by these mandatory distributions. The new rule would effectively provide an extra 18 months of tax deferral.
2. Allows individuals over age 70 ½ to make traditional IRA contributions. Some people would like to make IRA contributions into their 70’s. Now the age contribution restriction after age 70 ½ will be lifted. However, the income restrictions would remain.
3. Limiting the ability to stretch inherited IRAs over the beneficiaries lifetime: This provision will be an income generator for the government. Currently, if you inherit an IRA at age 40 or 45, your RMDs are fairly small because you can stretch those distributions out over your lifetime. The new rule would force beneficiaries to distribute the entire account over 10 years. This could lead to more Roth conversions where RMDs aren’t an issue.
4. Allowing a $5,000 penalty-free withdrawal for the birth or adoption of a child: There are currently a handful of hardship withdrawals that allow the account holder to withdraw money without incurring the 10% early withdrawal penalty. This allowance for birth or adoption is a nod to the costs associated with having a child.
5. Retirement plans will be required to notify account holders of the approximate lifetime income that may be generated from the current lump sum. This is just a useful number for people to have. The reality is that most people view retirement accounts such as 401Ks and 403Bs as long-term income sources. Knowing you have 500K is great, but knowing that, based on your age and an assumed growth rate, you can generate $2,000 or $3,000/month for life, may be more useful.
6. The Secure Act would allow for multi-employer (MEP) 401K plans. This is essentially a way that smaller employers can team up to increase access to 401K plans with reasonable costs and fiduciary responsibilities. There are a few caveats and requirements that the MEP must meet under the act.
In the end this bill may change a bit before it becomes law, but what is clear from the overwhelming support for the bill is that there is a renewed focus on looking at the specific provisions that impact retirement accounts and improving them. This will ultimately improve the financial lives of participants and help them save as much as possible for retirement in an efficient way.
As always, feel free to e-mail me with any questions.
Best,
Russell Bailyn
Wealth Manager
Premier Wealth Advisors, LLC
1411 Broadway, 16th Floor
New York, NY 10018
P: 212-752-4343 *231
F: 212-752-7673
rbailyn@pfawealth.com
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