As the media world obsesses over impeachment, important news is going unreported. One vital piece is the new retirement bill, or so-called SECURE Act, which became law on December 20. Details are important, so here they are.
Good news awaits most Americans in this landmark retirement legislation, arguably the first since 2006. In short, the new law – which President Trump signed last week – opens the door to wider, earlier and longer incentives for personal retirement saving, providing new tax advantages, and catching up with an important animating fact: Americans are living longer.
Concretely, the law takes a novel – if slightly complicated – approach to helping Americans save from an earlier age, save without incurring tax penalties at an older age, and diversify their saving options. It also helps small employers assist Americans to save, while making retirement more predictable and less stressful.
Among leading provisions, the law “expands access to annuities in retirement plans,” which means older Americans can think less about when, how and how much to save, more about living longer without worrying about running out of savings. While embracing annuities involves institutional trust, the trade-off is predictability.
Similarly, the law “increases the age for required minimum distributions,” which means one need not withdraw savings until age 72, if one chooses not to. Reflecting longer lifespans and the propensity of older Americans to work longer, the law “eliminates the age cap” for contributing to traditional retirement accounts.
In effect, the new law rewards those who focus on saving younger, working longer, and who wish to benefit from tax deferral. It also encourages “small employers” – which account for roughly 80 percent of American jobs – to participate in “multi-employer” 401(k) plans and get tax credits for enrolling younger employees (and part-time workers) in automatic retirement plans. Net-net, the approach is good for employees, small employers, the economy and country.
Like the largely underreported appropriations process, this law suggests Congress may be thinking hard about intergenerational obligations, the importance of encouraging Americans to save for themselves, and giving Americans a chance to look after nest eggs – earlier and longer.
What some seem to understand is that government cannot credibly meet the needs of a widening group of older Americans, that private savings must fill the gap, that individuals and employers respond to incentives, and that avoiding taxes is a powerful motivator.
The new law places renewed trust in the individual, marketplace, and private concern for retirement resources – implicitly recognizing that the largely unaccountable federal government will not watch anyone’s nest egg any better than they can watch it for themselves.
Since nuts and bolts matter, a few more here: Today, 401(k) plans require 1000 hours of work in 12 months; the new law reduces that to 500 hours for three consecutive years. Required minimum distributions can start at 72 not 70 and a half, which helps older taxpayers. IRA contributions can continue past 70 and a half for those still working.
One provision that some question is ending so-called “stretch IRA” accounts. That provision pays for the bill. The new law would, in effect, cause those inheriting an IRA to withdraw inherited resources within ten years, rather than stretching them out over a lifetime.
While this may upset some apple-carts, recall that those inheriting have a decade to invest inherited resources, that the inheriting cohort is more apt to have resources than many benefiting from the new law, and that many of those inheriting are now older at time of inheritance than historically.
What is the big takeaway? For most Americans, this new retirement law offers fresh options for saving, both younger and older. It has the redeeming feature – in a grander sense – that it helps the nation think more regularly about saving, from our youngest to oldest cohorts.
It reminds all Americans that – even in an age of government overreach, overregulation, and overzealous intrusion – every individual can affect the resource pool on which he or she retires.
Some will say this is nibbling at the margins, and perhaps they are right. But others will see in this law, new hope. The fact that any law emerging from Congress seeks to scroll back government intrusion, assist individual employees and smaller employers, is hopeful.
This law does not change the national landscape, end growth of the federal, or scotch a crazy, run-wild impeachment process. But is does offer a glimmer of hope for America’s future – and at Christmas, that’s a gift. Good news is welcome.