What does the new Secure Retirement Act mean for you? Leave it up to Washington to come up with a name like, Setting Every Community Up for Retirement Enhancement (SECURE) Act. The US Senate maybe voting on this new piece of legislation where it has already been voted on and passed in House. So, there is a good chance some version of this SECURE Act will become law potentially before year’s end.
But what does this new piece of legislation really do for you. In our opinion, not much. Retirement planning in this country needs an overhaul, but this new Act is more bark than bite. Yes, it does change the beginning required minimum distribution (RMD) age from 70 ½ to 72. This alleviates a lot of confusion over when retirees need to take their RMDs. But we would have liked to see an age of 75 because so many people are still working into their 70s. Next, the Act allows for multi-employer retirement plans, something that has been allowed to date but only with like kind business (e.g., engineering firms with other engineering firms). It will be easier for small employer 401K plans to establish retirement plans by increasing the auto-enrollment amount and businesses that do establish a retirement plan will receive a $500 tax credit. Two of the biggest benefits we see in this new Act: part-time employees will be allowed to participate in 401Ks and 529 funds will be allowed to pay down student loan debt. The increase in part-time work in our economy necessitated this retirement change. And the rise in student loan debt, to crisis levels, needs all the help it can get. A big negative coming out of this new piece of legislation is the abolishing of the Stretch-IRA. Currently a beneficiary, like a son or granddaughter, can inherit your IRA and have it paid out to them over their lifetime. This has been a great financial planning tool but will be revoked if the new law is passed.
We hope the SECURE Act makes its way through the Senate and becomes law soon. However, we hope the politicians don’t stop there. There is still much that needs improvement with the US retirement system. Recent studies have shown that only 55% of Americans participate in a retirement plan and the average 401K balance of those age 65 and older is only $58,035. The SECURE Act won’t completely solve this huge retirement shortfall, but it’s a step in the right direction.