SECURE Act

[kork13]

Some good news on the retirement front -- The "SECURE Act of 2019" was tacked on to the recently-passed spending bill from the House. Presuming passage in the Senate & Presidential signature (highly likely, to prevent a shutdown this week), there are some goodies in there for retirement savers, and other minor bits.

A few notables:
- RMD's are delayed until age 72.
- Eliminates maximum IRA contribution age (currently age 70.5)
- Eliminates the "1 bad apple" rule for pooled/multiple employer 401k plans, which should make them more attractive/feasible for small businesses
- Tax credit for small businesses that establish 401k's with auto-enrollment provisions (or transition existing plans to auto-enrollment).
- Students on paid fellowships can treat their stipends as earned income toward IRA contribution limits.
- Part-time employees who work either 1,000 hours in 12 months or 3 consecutive years of 500 hours can participate in their employer's 401k plans.
- 529s can be used for up to $10k of student loan repayment, as well as covering expenses for apprenticeships.
- Not totally sure if good/bad, and I may be misreading it...but it looks like they're eliminating the 'Kiddie Tax', and any unearned income (investment) for children is taxed at the parents' rate vs. estate/trust rates.

Also some less good, but noteworthy items:
- Non-spousal inherited IRAs must be completely withdrawn within 10 years (eliminating the "stretch" IRA)
- Arguably good or bad -- Allows up to $5000 of penalty-free 401k distributions within 1 yr of the birth or adoption of a child

[Thrif-t]

I gotta read that to learn about the 529 being allowed to pay for student loans (as I just paid my son's spring tuition out of his 529!) I'd much rather leave my money sitting and earning, take the student loans then pay them off with the 529 after he graduates.

I just went to the section on 529s in the link and didn't see anything stipulated about not being allowed to take the American Opportunity Tax Credit. If you pay 4k in qualified tuition and expenses and under a certain income you get a $2500 tax credit.

What we did with my other two dd was take loans up to 10k, got 10k back in tax credits over 4 years and paid the loans back with that tax credit money. Now I'm wondering if we could take more in federal loans and leave our 529 $ sitting till the end. Although I'm not sure we'd really earn that much anyway now to even worry about doing this. Oh well hopefully some other strategic people can take advantage of it

EDIT:

Hey wait, I just thought of another strategy. When I deposit $ into our Ohio 529 we get a tax write off. Maybe I can deposit the $2500 tax credit into the 529, get a state tax credit, then use the 529 to pay off the student loan! That would be worth it! There is no requirement that the money has to sit in the 529 for a certain length of time. I'm going to have to keep an eye on this.

[scfr]

Will this be a game changer?

Safe harbor for annuity selection

[Smallsteps]

Some good news on the retirement front -- The "SECURE Act of 2019" was tacked on to the recently-passed spending bill from the House. Presuming passage in the Senate & Presidential signature (highly likely, to prevent a shutdown this week), there are some goodies in there for retirement savers, and other minor bits.

A few notables:
- RMD's are delayed until age 72.
- Eliminates maximum IRA contribution age (currently age 70.5)
- Eliminates the "1 bad apple" rule for pooled/multiple employer 401k plans, which should make them more attractive/feasible for small businesses
- Tax credit for small businesses that establish 401k's with auto-enrollment provisions (or transition existing plans to auto-enrollment).
- Students on paid fellowships can treat their stipends as earned income toward IRA contribution limits.
- Part-time employees who work either 1,000 hours in 12 months or 3 consecutive years of 500 hours can participate in their employer's 401k plans.
- 529s can be used for up to $10k of student loan repayment, as well as covering expenses for apprenticeships.
- Not totally sure if good/bad, and I may be misreading it...but it looks like they're eliminating the 'Kiddie Tax', and any unearned income (investment) for children is taxed at the parents' rate vs. estate/trust rates.

Also some less good, but noteworthy items:
- Non-spousal inherited IRAs must be completely withdrawn within 10 years (eliminating the "stretch" IRA)
- Arguably good or bad -- Allows up to $5000 of penalty-free 401k distributions within 1 yr of the birth or adoption of a child

NO BILL is going to get people to save for themselves. In the end that is what both IRA and 401ks are ALL about is personal responsibility.

I find it ironic that so many want to separate healthcare from employers but think employers MUST be the answer for retirement savings. everyday isee or hear of those lamenting back to the good ole days of pensions blaming BIG Bad Greedy employers ......... not the politicians that brought us the 401K system.

For those using IRAs they may like the options here like the postponed RMDs and ability to contribute longer. The elimination of the stretch probably only effect a small group.
Isn't it like 50% that NOW have access to 401ks do not participate? I wonder what % really are using IRAs either reg or Roth?
It drives me simply crazy when I read about X% have NO WAY to save for retirement because their employer does not offer a plan like every writer of financials simply forget about the IRA or Roth IRA.

I am really not for the 401k auto enroll pushed as this is once again is setting people up for mess. If people leave jobs often (in my area many job jump fairly often) and do not have a roll-over method set up..... end up cashing small amounts out and just paying taxes and penalties.
Many of these auto signed up are also the ones dipping into it like it is an EF. The employee's budget or lack of one did not build in whatever % these auto enrolls decided FOR you.

Revolving door money is NOT growing an account for future. TIME is needed especially in lower paying careers to even have a chance to have any sort of nest egg for retirement. Even penalty free options lower your growth in these accounts.
These retirement accounts are ones that need to be left to grow. If you need extra savings for life events such as having a child adjust your % contributions and save for LIFE events in an savings account that was designed to be dipped in.

The crisis that is coming from so many not prepared for retirement is not ALL about access but active and informed participation.

[corn18]

Will this be a game changer?

Safe harbor for annuity selection

Probably not. That just indemnifies the employer if the underlying provider of the annuity fails. So no help for the annuitant. It may simplify things if you want an annuity. But I can see this going in a bad direction where insurance companies bombard everyone with offers to annuities their 401k and trick them into variable or index annuities with stupid high fees. Like reverse mortgages, annuities make sense for some, but not all and a variable or indexed annuity never makes sense. If they set it up like TSP and offer only SPIA's, then it will be a good thing.

[disneysteve]

I find it ironic that so many want to separate healthcare from employers but think employers MUST be the answer for retirement savings.

Those are two entirely different issues, apples and oranges.

You don't lose your retirement account if you leave your job, but lots of people feel trapped in dead end jobs because if they leave, they won't have health insurance.

Also, the non-employer-based retirement options are hardly comparable to the employer-based ones. I can put $25,000/year into my 401k but only $6,000 into a Roth. And I can't even fund a Roth because I'm over the income limit, so if not for my 401k, I'd have no tax-advantaged way to save for retirement.

As for auto-enrollment, it isn't perfect but it's way better than nothing. Momentum is a very strong force. If you have everybody contributing, even if only 3%, very few will go to the trouble of opting out. Most will just leave it be. Sure, some will pull the money out for something stupid at some reason, but that's a different issue.

[Thrif-t]

Maybe a little off topic but I've been thinking about this. We have a retirement saving crisis! Why doesn't the company match ever INCREASE??

I've been working for 29 years and in all that time its always been matched 100% up to 3% then 50% up to 6% in my job (I know different everywhere).

How about companies having to increase their MATCH periodically! What about that????

[corn18]

Maybe a little off topic but I've been thinking about this. We have a retirement saving crisis! Why doesn't the company match ever INCREASE??

I've been working for 29 years and in all that time its always been matched 100% up to 3% then 50% up to 6% in my job (I know different everywhere).

How about companies having to increase their MATCH periodically! What about that????

This is driven by labor market dynamics, not inflation or personal savings factors. I get 100% up to 6%. If I were looking for a new job, I would look at their match. If it is not competitive, they better have something else to make up for it if they want me to work there. That works in a tight labor market, but not so much if unemployment is high.

[Smallsteps]

Those are two entirely different issues, apples and oranges.

You don't lose your retirement account if you leave your job, but lots of people feel trapped in dead end jobs because if they leave, they won't have health insurance.

Also, the non-employer-based retirement options are hardly comparable to the employer-based ones. I can put $25,000/year into my 401k but only $6,000 into a Roth. And I can't even fund a Roth because I'm over the income limit, so if not for my 401k, I'd have no tax-advantaged way to save for retirement.

As for auto-enrollment, it isn't perfect but it's way better than nothing. Momentum is a very strong force. If you have everybody contributing, even if only 3%, very few will go to the trouble of opting out. Most will just leave it be. Sure, some will pull the money out for something stupid at some reason, but that's a different issue.

People stay in DEAD end jobs for many reasons not just health or retirement but the talking point is separate healthcare ASAP but if there is a retirement lack it is the EMPLOYERS fault.

The difference is not that big if you leave your job cobra can keep going for a time like until you get new job .... the may keep SOME retirement ( employee contributions) but the amount they get to TAKE with them OF any match varies greatly by plan and length of service.
People stay out of being Afraid of what IF ...... what if the new insurance cost more or covers less ? what if my deductible is more...... they NEVER seem to ASK what if it is cheaper / covers more and easier to deal with.

How is counting I must stay ( for example 5 years) to vest and keep my employer match or I must stay to keep this insurance....... apples and oranges?
.
I just do not understand why every time the subject of lack of retirement savings they BLAME employers who have not offered plans.
WHY,? There are other ways and while there are limits ect. , MOST are not in your shoes that max out all tax advantaged options every year.
I am talking those whom are in the zero balance category where the 6000 a year for IRA seems like a impossible task.

My point is from the stand point of those whom work for small employers that as of NOW may not have a plan. NOT to mention some plans have varying match equations some do not even match.

I think your income distance from most of the ones who need the most help in starting or working towards retirement does not necessarily give you a front row seat to see what really happens.
I work with and or have friends whom are in these shoes.
If they stay a short time maybe 1 year etc the often just cash out that 3% if they did not bother to opt out. Since they pay tax and penalty they are moving backwards.

Many simply not sure who or where to trust to ask about how to roll over and what type of options they have.
Many with perhaps a few years or over the limit where they can leave with an employer often are not doing well as these inactive accounts are slowly being eaten by admin fees etc.

Others whom are wanting the match feel like i must stay X amount of time until I am vested to take the match. So staying in a dead end job for that is OK and not the same as those whom CHOSE to stay for whatever health plan they like.

[disneysteve]

I don't think I've ever spoken to anyone who was staying in a bad job situation because of a retirement plan match but I'm sure it probably happens. Realistically, if you've been getting the maximum match you could be talking about a nice chunk of money. My match for 2019 was $4,400 so if I need 5 years to be vested and leave after 4, I'd be throwing away almost $18,000. I could see someone sticking it out a little longer rather than losing that kind of money.

You're totally right that for folks who are saving nothing, an IRA is a perfect option. My daughter started hers when she was 16 or 17 with babysitting and summer job income. She didn't fund it during college since she didn't have a job but as soon as she graduated and started working, she started contributing again. She's not even close to maxing it out as she doesn't earn that much yet but at least she's funding it. But I taught her early on the importance and value of starting early with whatever you can. I sat down with her and used a savings calculator to show her how that money would grow over time. The problem is not everyone has that sort of teacher/influencer in their lives. As we repeatedly say, education is critically important. People don't all just figure this stuff out on their own.

As for COBRA, a lot of people can't afford that as it's often around double what you were paying while working, since you have to pay both your share and the share your employer was paying for you. So yes, you can carry COBRA for 18 months, but a great many people can't actually do that, especially if they aren't working for any period of time.

[Smallsteps]

The problem is not everyone has that sort of teacher/influencer in their lives. As we repeatedly say, education is critically important. People don't all just figure this stuff out on their own.

As for COBRA, a lot of people can't afford that as it's often around double what you were paying while working, since you have to pay both your share and the share your employer was paying for you. So yes, you can carry COBRA for 18 months, but a great many people can't actually do that, especially if they aren't working for any period of time.

Yes your daughter is lucky to have a good teacher. Most people whom do not take it upon themselves to learn.... the ones who come forward to "teach" often are more likely targeting people to invest in a way to benefit or pay them.
Just like your post says you might need to review an new employers match policy since your current is generous. You would need to factor that in in switching jobs and some people may stay put for similar reasons.

I think everyone should see a cobra statement. Very often people are NOT really aware of the total cost paid by employers for their benefit.
NO it is NOT cheap and many CAN not afford to keep it. but it is an option.

The problem with all these retirement "fixes" is they are often complicated and with a lot of legal jargon and" in this case but with these various exceptions" etc.
Half way through the bill people get glazed over and simply do not get much more then bits and pieces.

ANNUITIES often have higher fees and there are many junk ones out there people won't know they bought junk until after it is too late. I understand the desire for people to want a set amount instead of risking running out of their saved money especially if they started late or did not have a large income to begin with.

[scfr]

Probably not. That just indemnifies the employer if the underlying provider of the annuity fails. So no help for the annuitant. It may simplify things if you want an annuity. But I can see this going in a bad direction where insurance companies bombard everyone with offers to annuities their 401k and trick them into variable or index annuities with stupid high fees. Like reverse mortgages, annuities make sense for some, but not all and a variable or indexed annuity never makes sense. If they set it up like TSP and offer only SPIA's, then it will be a good thing.

My thoughts were similar … that it could be a really good thing, but that it probably will wind up being bad because the options may be driven by annuity sales people who don't have the best interest of the employees at heart. And that a lot of employees will look at their plans and say "guaranteed income? sign me up for that" without understanding what they are getting.

[disneysteve]

Just like your post says you might need to review an new employers match policy since your current is generous.

We get a 50% match up to 6% of pay. Isn't that a pretty standard formula?

We do also get an additional 1.5% whether we contribute or not. That part is probably more generous than most.

[corn18]

My 401k is 100% up to 6%.

[Like2Plan]

Also some less good, but noteworthy items:
- Non-spousal inherited IRAs must be completely withdrawn within 10 years (eliminating the "stretch" IRA)

I guess it is law now. This is the provision that will require a careful plan if you have managed to save enough for 30-ish years of retirement (in tax advantaged retirement accounts) and unfortunately pass on early in your retirement. The biggest problem might be a lack of awareness for non-spousal heirs which might be a problem even if you have managed to convert your pretax retirement accounts to Roth. I think the penalty is 50% if all the funds are not removed by the 10 year point.

It could make saving in taxable equity investments for heirs a little more attractive, although legislation could be passed to take away the stepped up basis....