Money / Retirement Planning

More Good News – New Retirement Law

reitrementAs 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.

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Read more articles by Robert B. Charles

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Bolish Jablonski

Congress needs to STOP taxing our retirement Social Security income. We already paid when we made it and paid. And it is NOT a gift from the government either!!!

Phil Caiazzo

We should thank God that we elected President Trump he certainly is the right man at the right time

PaulE

Yes it is good news that the government has finally gotten around to raising the mandatory IRA RMD age from 70 1/2 to 72 (an 18 month bump), but in all honesty it should have been extended to something more meaningful such as 75 given longer lifespans. As for the so-called “pay for” of ending the stretch IRA, the notion that allowing people to keep their money somehow has to be “paid for” by changing the rules of the road with only days left in the year (no grandfathering for those not dying before January 1, 2020), this just symbolizes the absurdity of the Congressional budget process. Everything is stalled until the last few days of December and then Congress rams through a 2,000 page spending bill in 24 hours with no real review or debate by members of Congress or the public as Congress races out the door on… Read more »

Jchark harkins

Anything that takes money from govt and gives it back to the people is by definition GOOD.

Brenda Blunt

Once one retires, there should be no taxation as the dues have already been paid tenfold.

Jeff G

Remember, it was Al Gore who was the deciding vote on taxing social security.

Pete from St Pete

If I am under age 50 and self employed I can put up to $5,000 in my IRA annually and not pay taxes on it until I withdraw it from my account. If I am under age 50 and work for an employer I can put up to $18,000 into my 401k and not pay taxes on it until I withdraw it from my account. Why the discrepancy? An independent contractor cannot possibly save enough to last him the rest of his expected lifetime at $5,000 a year. Is the government implying that employees work three times as hard as independent contractors?

Bob L.

It may be a “good” law, but it is still a bird’s nest of legalese and probably in violation of more than one provision in the Constitution as to how it is managed. Ever heard the term “cradle to grave”?
I’ve come to the conclusion the only “laws” I would even consider good again are laws that repeal the mass of government over reach which has buried the Constitution so deep it’s now nothing more than something politicians briefly mention the name of in promoting even more over reach.

Jerry cowan

They forgot about those of us already receiving social security. This year I received an additional $13 per month, not quit as good as last years $26. It’s so satisfying that I’m rewarded for so many years of contributing.

Patrick Spencer

You folks are smoking something! I had very strong words with an aide to my Congressman about his push for this legislation. The aide’s basic question was: ” Where did I possibly get the idea that my IRA’s were mine to use to create an estate plan” The answer was from Congress far before this young man’s time! To paraphrase: Congress giveth and Congress taketh away and with no warning! This legislation was dead in the Senate until someone got the bright idea to add it to a spending bill that had to get passed. If our beloved Congress would get back to “regular order”; we would not have these dead of night attacks on our wallet. Moving the RMD out 18 months is nice but no biggie compared to tearing up a quarter of a century of planning. I have talked to many folks who feel just like I… Read more »

Irv C

Ted Cruz put out a video in lobbyists and the multi TRILLIONS they steal from Americans. Maybe it’s in Utube I’m not sure as it was sent to me but what an eye opener. If this doesn’t prove the corruption in Washington then nothing does. My point is Uncle Sam can stroke the Citizens with smoke and mirrors but the bottom line is we’re all nothing short of financial pawns.

Stephen Russell

Have Cong & Senate pay into plan 2, or all Govt (modify for Armed Forces personnel uniform)

gloria rider

I was hoping they would have addressed that we need cost of living raise which we have not got for 8 or 9 years. I I just got a raise of get this, $9.00 whoopee. They are not taking care of us seniors period. Something has to be done by Trump to fix this. thank you.

Allen Miller

Why am I not seeing this information on the IRS website?

‘Nonymus

Imagine, the government enacting something that actually benefits the people!

David Coakley

Dear AMAC,

Please calculate how much more we would have in our social security accounts if we had been allowed to invest in the stock market via the proposals President GW Bush offered years ago. I think the difference will further make the case that Democrats’ have theories that are plain wrong.

The results of this research would be a great talking point for Republicans for years to come. And who knows, maybe President Trump would dust the proposal off and try once again armed with the numbers.

Merry Christmas,

David

Press ONE for English

“Americans are living longer.” obamacare was supposed to take care of that troubling reality. And it still may; far too many people see that monstrosity as a good thing. As to this legislation, I don’t see much to crow about. My retirement saving days are long in the past, nearly 20 years ago, to be exact. Moving the RMD age from 70 1/2 to 72 is a good thing, but again not much for me since I never trusted 401K’s and IRA’s and did most of my investing elsewhere. And the article mentions annuities as if they are a good thing. The writer probably did not have his pension stolen as mine was, in a fake bankruptcy, and replaced with some junk annuity that will never increase payments, regardless of the rate of inflation. And should I die early? Woo-Hoo! The annuity company just won the lottery. The fees and… Read more »

Ralph Padilla

This new law does not make me smile at my age(69). What happen to rescinding the WIND FALL ACT ? My social security was reduced by $400.0 per month because of Bill Clinton changing the law.

Aardvark

Along with this good news, the left is also planning to use part of the spending bill as a backdoor amnesty play.

Helen C

President Clinton raised the amount of taxable SS income from 50% to 85% for “higher income” beneficiaries in Omnibus Budget Reconciliation Act (OBRA). The OBRA 1993 legislation was deadlocked in Senate on tie vote of 50-50. VP Al Gore cast deciding vote in favor of passage. President Clinton signed the bill into law on Aug. 10, 1993.