On May 23, the House of Representatives passed a bill that, if adopted by the Senate and signed into law by the president, will mean major changes for retirement plan participants.
The bill (H.R. 1994, the Setting Every Community Up for Retirement Enhancement (SECURE) Act) has bipartisan support and is the natural byproduct of a legislature that is concerned about the retirement security of American workers.
As House Ways and Means Committee Chairman Richard E. Neal, D-Mass., said in a release: “With passage of this bill, the House made significant progress in fixing our nation’s retirement crisis and helping workers of all ages save for their futures.”
Further, “The legislation closes loopholes and makes it easier for small business employees, home care workers, and long-term part-time workers to save for retirement.”
To help more companies offer retirement plans to their employees, the act permits companies to form multiple employer 401(k) plans. It helps small companies afford to offer plans by increasing the credit limit for small employer startup costs. To help with startup costs, the act creates a new auto-enrollment tax credit for employers.
In recognition of the fact that people are working (and living) longer, the legislation will permit contributions to traditional IRAs after age 70 1/2. (There was no need to change Roth IRA and 401(k) contribution rules, as they already allow contributions after age 70 1/2.)
Anyone who reads this column for any length of time surely recalls the questions readers have asked about required minimum distributions (RMDs) that get triggered at age 70 1/2.
The act replaces age 70 1/2 with age 72, but not until 2020. (If you turned age 70 1/2 in 2019, it looks like you won’t be able to delay RMDs to age 72.)
Another benefit is the expansion of Section 529 accounts to cover costs associated with registered apprenticeships, homeschooling, private elementary, secondary or religious schools, and up to $10,000 of qualified student loan repayments (including those for siblings).
The act changes post-death RMDs — those that are mandated when the IRA account owner dies. This change is not a benefit to people who want to “stretch” their IRAs. In effect, it appears that the maximum stretch will be 10 years after the owner’s death.
Quoting from the committee’s recap of the act, “Under the legislation, distributions to individuals other than the surviving spouse of the employee (or IRA owner), disabled or chronically ill individuals, individuals who are not more than 10 years younger than the employee (or IRA owner), or child of the employee (or IRA owner) who has not reached the age of majority are generally required to be distributed by the end of the tenth calendar year following the year of the employee or IRA owner’s death.”
The financial services industry sees the legislation positively.
Paul Schott Stevens, president and CEO of the Investment Company Institute, issued this statement: “This important bipartisan bill provides more tools for American families to save for and achieve a financially secure retirement.
“Changes like expanding multiple employer plans and raising the auto-enrollment safe harbor cap build on policies that are proven to work for our nation’s savers. Reforms such as repealing the maximum age for making traditional IRA contributions and increasing the age required for mandatory distributions will help align policy with the reality that people are living longer today.”
In my view, as a proponent of financial literacy education and a professional money manager who specializes in retirement wealth, the act is a move in the right direction. Of course, I’d like to see more. For one, delaying RMDs to age 75 or even 85 would be preferable, or better yet, how about eliminating taxes on IRA withdrawals during retirement?
You can link to the act here: https://bit.ly/2wqjEf5
This is the recap: https://bit.ly/2VOSMAH