Examining the Changes in Retirement
Here are eight major aspects worth examining from the SECURE Act:
1. Increase Small Employer Access to Retirement Plans
This will essentially allow small employers to come together to set up and offer 401(k) plans with less fiduciary liability concern and less cost than exists today.
2. Increase Annuity Options Inside Retirement Plans
This will update the safe harbor provision for plan sponsors to select annuity providers in order to offer in-plan annuities inside of a 401(k). The new rules would essentially ease this liability concern to some degree, potentially opening the path for more annuities to be offered inside of retirement plans.
3. Increase Required Minimum Distribution Ages
Today the law requires that most individuals take out required minimum distributions (RMDs) from their retirement accounts once you reach age 70.5. The SECURE Act would delay this requirement to age 72.
4. Removal of Age Limitation on IRA Contributions
The SECURE Act would remove the savings limitation by repealing the age limitation for traditional IRA contributions.
5. Tax Credit for Automatic Enrollment
Introduces a new tax credit of $500 to help some smaller employers encourage automatic enrollment into their retirement plan. This small credit could help offset some of the costs of operating a plan at the beginning.
6. Penalty-Free Distributions for Birth of Child or Adoption
The new rule would allow an aggregate amount of $5,000 to be distributed from a retirement plan without the 10 percent penalty in the event of a qualified birth or adoption.
7. Lifetime Income Disclosure for Defined Contribution Plans
The bill would require that defined contributions plans deliver a lifetime income disclosure to participants at least once every 12 months. This lifetime income disclosure would essentially show how much income the lump sum balance in the retirement account could generate.
8. Removal of “Stretch” Inherited IRA Provisions
The new bill includes what is viewed as a tax-generating provision that would require most beneficiaries to distribute the account over a 10-year period. This change would accelerate the depletion of inherited accounts for many large IRAs and retirement plans.
While the SECURE Act does smooth out some minor roadblocks to retirement savings – the major issues facing retirement security for most Americans still come from Social Security funding, rising health care costs, strains on Medicare and Medicaid. This is not to say that the SECURE Act provisions aren’t positive changes, just not really going to do much to deal with the real retirement issues facing Americans.