Finance / Politics

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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Don
1 year ago

The provision for non-spousal inherited IRA’s in this new law requires the account be vanquished within 10 yrs of death.

Joe
1 year ago

The SECURE Act holds the threshold for the medical expense deduction at 7.5% for 2019 and 2020 (was scheduled to rise to 10% in 2019). Why is AMAC not reporting this important detail?

Dee Kramer
1 year ago

Please what about WEP passed senate 521 – and House 141. This bill takes away up to half of the Soc. Sec. You have worked for if you are getting a pension! Need to repeal!!!

Rickis Clark
1 year ago

Three laws that would benefit the retired elderly is to discontinue taxing Social Security benefits! The money here had already been taxed before ever becoming eligible to receive. Another positive change that would help the Elderly is to change the 65yr benefit amount to be moved down to the 62 age bracket! Therefore the the only two age brackets would be 62 and the 70yr amount would remain untouched! All money collected for SS should go back to President Roosevelt’s original plan to safeguard this money, depositing it Trust accounts never to be dipped into no matter the reason! It was back in the mid eighties during the Reagan administration when SS was first taxed! Today SS is considered by the IRS as income!
(01) Discontinue the taxing of SS!
(02) 65yr benefit amount switched to 62yr bracket amount!
(03) All collected SS money placed in Trust accounts for safeguarding from crooked politicians!

Rickis Clark
1 year ago

Three laws that would benefit the retired elderly is to discontinue taxing Social Security benefits! The money here had already been taxed before ever becoming eligible to receive. Another positive change that would help the Elderly is to change the 65yr benefit amount to be moved down to the 62 age bracket! Therefore the the only two age brackets would be 62 and the 70yr amount would remain untouched! Also all money collected for SS should go back to President Roosevelt’s original plan to safeguard the this money, depositing it Trust accounts never to be dipped into no matter the reason!
(01) Discontinue taxing SS!
(02) 65yr benefit amount switched to 62yr bracket!
(03) All collected SS money placed in Trust accounts!

Wendell Ruth
1 year ago

Someone needs to look into why if you retire you are limited on the amount you can make since more retired people have to work to survive.

Mary Johnson
1 year ago

We work hard to save money but the government still tax the money.

james e tryon
1 year ago

I can manage fine if the government would stop taking what I have already earned and payed taxes on. How many times are they going to tax the same income? Social security is your money that you put in and paid taxes on at the time. Now they tax it again when you get your own money back. You will die before you get it all back so someone else will get your money! I spent 38 years in law enforcement. Fact backed up by records; two thirds of all politicians nation wide have a criminal record. Don’t believe me, just google public records with their name.

PaulG
1 year ago

It would have been great if part of the SECURE act was to phase out social security as they phased in better retirement plan options for those currently working. Government does not understand how to make money, just how to take money that others make. Businesses and institutions understand VERY WELL how to make the most of earnings and investments and how to grow savings and wealth. That’s why my 401(k)s and IRAs are where I put every penny I could, instead of hoping on “social security”. My wife and I planned on social security not even existing when we retired (and it almost doesn’t already) and focused on market and business investments in our accounts. We did very well, even with the government confiscating social security taxes from ourselves and our employers. Imagine if those funds, instead of going into the broken pyramid scheme of social security, could stay with the individual, be invested for the individual, and be returned to the individual – the way our retirement plans have worked. That would be wonderful for all workers and their eventual retirement.
But phasing out government SS wasn’t on the table. Oh well, small steps I guess.

As for the other downside of SECURE – the elimination of the “stretch IRA” benefit – that will just take some estate planning changes to minimize the “harm”. But the loss (taxes) to the heirs as they have to take distributions of the IRA over a shorter term can more than be made up for with market based investments of what they do get to keep. Good savings discipline, learning to live with an eye on the future instead of going for constant and immediate gratification, and “wealth management” through sound investments, work together to provide a REAL retirement, and one that does not make anyone bound to government mismanagement and their failed promises.

Diana Grooms
1 year ago

We already paid tax on the income we receive from Social Security. Stop making us pay tax on money we already paid tax on. It’s our money we earned it.

MeFree
1 year ago

good to know!
BTW, never heard of the use of “scotch” this way: “… or scotch a crazy, run-wild impeachment process..”

Earl
1 year ago

After I worked all my life and was taxed at every corner for everything, and now I’m Retired; why am I now being taxed on My Pension and Social Security? I believe enough has been Stolen by this Government already and most of our Tax dollars has been used and Spent on foolishness, Wasted, and you continue doing the same dumb things year after year with the people’s tax money. Oh, by the way, ALL of this was HAPPENING BEFORE Donald Trump became President of the United States of America’s. Thieves and Robbers of the hard working citizens of the United States, The Word of GOD describes you perfectly in the Bible; the Thief comes only to Steal, Kill and Destroy. The Blood of Jesus on ALL of you.

MARC
1 year ago

15% flat INCOME tax
EVERYONE PAYS NO LOOP HOLES
No IRS double-dipping
Start shutting down social security with the young
Change to savings and investment plans

Finally FORCE the GOVERNMENT to BALANCE AND DECREASE THE BUDGET
SO TO ACTUALLY SPEND ONLY WHAT THEY CURRENTLY HAVE IN THE COFFERS

Ralph Hinrichs
1 year ago

I will assume that the ending of the stretch provision will be grandfathered? I am working on one now from my mother. It uses a different actuarial table, and is managed by my financial advisor.

tonee
1 year ago

The Wind Fall Act punishes federal employees by reducing their ss benefits substantially. Padilla is right. My ss estimate was $400 more back in 2009 than I am now receiving from ss. Really unfair and seemingly illegal. Way back in 2016 the House Ways and Means Committee delayed consideration of HR 711 of “The Equal Treatment for Public Servants Act”, legislation that would reduce the Windfall Elimination Provision (WEP) penalty on affected government employee;s ss benefits. Chairman Kevin Brady said the bill is about getting equal treatment for public servants. The National Active and Retired Federal Employees Association (NARFE) who originally supported the bill withdrew its support when substantial, negative relief changes to recipients were made to the bill, causing the Committee to shelve it. Millions upon millions are affected by the injustice of this Windfall provision. How about Congress working on this, believe the executive office would lend a willing ear to “righting” this injustice? Be great if AMAC would stand with us on this. We, the afflicted from this damaging Act, are all well up there in age, mid 70’s for me. If we are to see any welcome relief, hello, time is now.

Saldivar Toni
1 year ago

Would not have known about this if not for this article, thank you!

Helen C
1 year ago

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.

Helen C
1 year ago

I don’t understand why government didn’t invest money they deducted from us to be paid out later into instruments that increased the $$ in social security for future payout. Why was the government allowed to raid $$ from social security and spend $$ on federal government expenses not related to social security payouts.

Larry Jerdon
1 year ago

I have always opposed a minimum distribution age on investment savings accounts! Why should I be forced to take it and pay additional taxes when I don’t need the money? The government has never been friendly to the aged when it comes to taxes, including Social Security and pensions! In the times of our greatest need for income, especially on income we’ve set aside an already paid taxes on, the government ignores us!

K Mihalsky
1 year ago

I wish they would do something with serial annuities. That was a terrible law.

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