There COULD be changes coming to retirement plan legislation. A new bill known as the Setting Every Community Up for Retirement Enhancement (“SECURE”) Act, received overwhelming House bipartisan support in late May. In 2016, the Senate had proposed their own bill known as the Retirement Enhancement and Savings Act (RESA), which contains similar provisions to SECURE. It remains to be seen if the Senate will pass RESA separately, or move forward on the new SECURE legislation instead.
Below are key features of SECURE:
Required Minimum Distribution (RMD) Age Raised
Under current rules, all owners of IRA accounts and most owners of 401k accounts must begin taking withdrawals upon attaining age 70 ½. The new rules would push this limit to age 72. Using an even number like 72 will make it easier to determine the Required Beginning Date for these distributions.
Age Limit for Contributions to IRAs Removed
Currently, one can no longer contribute to a Traditional IRA once reaching age 70 ½. The proposed rules would eliminate the age cap.
Annuities within 401(k) Plans
Annuities are rarely used in 401(k) plans, due to the potential liability an employer assumes by providing such a product. The new legislation would help insulate employers from liability if an insurer-administrator of an annuity failed to pay claims. This added feature to a 401k plan would provide supplemental income during retirement, similar to a pension. Transparency of reporting would be required, disclosing the amount of income that the account would produce in retirement.
Inherited IRAs – No More Stretch
Currently, most inheritors of IRAs may stretch out distributions for their lifetime. The new rules would require the inheritor to take distributions over a much shorter period – a decade – thereby accelerating taxes paid to the government on these accounts. Surviving spouses and minors would be exempt.
Special Withdrawal for New Child Expenses
The new rules would allow parents to withdraw up to $5,000 from retirement accounts within the first year of a child’s birth or adoption.
Multiple Employer Plans
Under new rules, small employers could join forces to share costs in administration of a plan. The complexity, cost, and liability concerns that go along with administering a plan are a barrier to entry for many small businesses. Adding flexibility of administration could give more American workers access to a retirement savings vehicle.
The above changes, if enacted, might require you to update to your financial plan. Speak with your advisor if you have any questions, or contact Matt directly at email@example.com
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