Originally published on ShreveportTimes.com on January 3, 2020
BY: BYRON MOORE, CFP®
Managing Director, Planning Group – Argent Advisors
Every time Congress passes a major piece of legislation, they aren’t just passing a law. They are sending a message.
And with the passage of the SECURE Act, the message could not be clearer.
While most of us were wrapping the last of our Christmas packages, Congress passed and the President signed into law the “Setting Every Community Up for Retirement Enhancement” (SECURE) Act.
With broad bipartisan support, Congress obviously felt a need to pass the SECURE Act legislation precisely because most Americans are so in-secure when it comes to retirement. Americans have not saved enough to fund a secure retirement and we run the risk of outliving what money we have saved.
Problem defined. Now what to do about it?
Work longer. Save more. Get guaranteed income for life.
Congress could not have been clearer by the passage of this legislation. Here are a few highpoints:
Traditional IRA contributions – no upper age limit. Until now, you could only make traditional IRA contributions of taxable, earned income up to your age 70 ½. Now Congress will give you an extra 2 ½ years to make those contributions. Implication: you’ll be working and saving during those extra 2 ½ years.
Required minimum distribution age – increased from 70 ½ to 72. The tax law demands that traditional IRA owners begin distributing (and paying taxes on) a minimum amount of one’s IRA account each year beginning at a certain age. That age used to be 70 ½. Now, it’s 72. Same reason as above – you need to be working and saving longer.
Guaranteed income options in plans. This is a brand-new option academics have been recommending for years. Now 401(k) plans can offer guaranteed income annuities inside retirement plans so plan participants nearing retirement can lock in guaranteed income for life.
Ideally, this would have been limited to low-cost, simple guaranteed income annuities, which serve a unique and valuable role. The insurance industry may have also been able to broaden the types of annuities allowed into plans to include variable annuities. From what I’ve seen, caution should be exercised before you buy a variable annuity inside a 401(k) plan – too many expenses for too few benefits.
In-service distributions – permitted at age 59 ½. Until now this was a provision available only on a plan-by-plan basis. Congress has now ratified what so many planners have already known – 401(k) plans are (rightfully) oriented towards the needs of workers saving towards retirement, not necessarily workers within five years of retirement.
Given their orientation towards long-term retirement savings, 401(k) plans often have several growth (stock) options, with relatively few income (bond) options. This is OK for the 45-year-old with 20 years until retirement. But when one is nearing age 60, the risk of losing money is much more important than the opportunity to make high flying market gains.
In-service transfers allow workers to transfer assets in their 401(k) plans to a self-directed IRA, which should have much broader options and portfolios suitable for a near-retiree. The SECURE Act now guarantees that right for all 401(k) participants.
Small business – tax and administrative breaks to set up retirement plans. Several tax breaks, administrative concessions and safe-harbor provisions have been provided in the SECURE Act to encourage small businesses of all stripes to set up and promote retirement savings plans for their employees.
America, Congress is sending us a message: we are behind in our preparedness for retirement.
Let’s make 2020 the year we get this train moving in the right direction.
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