Now that congress has passed more changes to the laws around retirement planning, what does it mean for your plan?
On March 29th, the House of Representatives voted almost unanimously in favor of passing the SECURE Act 2.0 – an expansion of the original 2019 SECURE Act. The new bill — which is expected to become law soon — includes provisions that affect everything from your 401(k) contributions to your RMDs. I’ll cover: How the bill aims to help you save for retirement; how it aims to help once you’re taking retirement income; and how it may affect income investors specifically.
SECURE is an acronym for Setting Every Community Up for Retirement Enhancement. The original Act was signed into law in December 2019 and altered the existing rules around required minimum distributions; contributions to 401(k)s and traditional IRAs; the use of so-called stretch IRAs; and 529 plans for student loans – just to name a few. It also made it easier for 401(k) plan administrators to offer income products. The SECURE Act 2.0 expands on all these provisions and adds new ones. Many are aimed at encouraging more people to save for retirement, namely by taking full advantage of their employer-sponsored retirement plans. For example, the bill requires employers that offer 401ks or 403b plans to automatically enroll employees once they become eligible. Most importantly for older workers, 2.0 also allows you to make larger catch-up contributions to your 401(k) or 403(b). And if you’re one of the millions of Americans caught between saving for retirement and paying off college debts, 2.0 aims to help by allowing your employer to make matching contributions to your student loan payments.
Now, let’s talk about some things in the bill that will affect you once it’s time to start taking retirement income. The biggest, by far, involves your Required Minimum Distributions, or RMDs. These are the mandatory withdrawals the government forces you to start taking from your retirement accounts and paying taxes on once you reach a certain age. Before the original SECURE Act, the starting age for taking RMDs was 70-and-a-half. Currently it’s 72, and once 2.0 becomes law it will increase to 73. Then it will be raised to 74 in 2029, and to 75 in 2032. Other key changes coming courtesy of the SECURE Act 2.0 include higher limits for qualified charitable distributions, the modification of 403(b) plans to make them even more like 401(k)s, and the elimination of existing barriers to offering lifetime income annuities as retirement plan investment options. This last change expands on other provisions in the original SECURE Act that address the liability concerns some employers had about offering income products – such as annuities – in their 401(k)s and other plans. These new provisions also make income products portable between retirement plans and call for new disclosures about how your retirement savings might be different if you were invested in a lifetime income product.
These kinds of legislative changes and others might be seen as Congress’s way of making a point I stress constantly: that the key to a successful retirement can be summed up in a single word: income! I’d call that progress. But it’s also important to remember that creating a comprehensive income strategy designed to help meet your retirement goals is no simple task. It’s a highly specialized area of financial planning that typically requires the knowledge of an income specialist. That means a specialist who can help you create a strategy designed to overcome all of retirement’s many challenges, which include: Longevity, and the need to plan for up to 30 years of reliable income. Inflation and healthcare inflation, especially. Trying to maximize your Social Security. Trying to minimize your taxes and satisfying your RMDs without spending down your principal. Estate planning and the ability to leave your family a legacy without also leaving them a big tax burden. The ability to help grow your portfolio strategically with minimum risk and maximum income return.
The SECURE Act 2.0 has strong bipartisan support, which means it’s highly likely to be signed into law, possibly before summer. While the final version is likely to include some modifications, they’re expected to be minor. Although collectively the SECURE Acts do create many new incentives and opportunities for hardworking Americans to save for retirement, they don’t address every challenge, and they certainly don’t make the process a piece of cake. The responsibility of securing your own financial future is still, ultimately, up to you.
Investment Advisory Services offered through Sound Income Strategies, LLC, an SEC Registered Investment Advisory Firm. Arbor Financial Services of Florida, Inc. and Sound Income Strategies, LLC are not associated entities. Arbor Financial Services of Florida, Inc. is a franchisee of the Retirement Income Store. The Retirement Income Store and Sound Income Strategies LLC are associated entities.