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The SECURE Act: Its Impact on your Retirement Planning

In late May 2019, the House passed the Secure (Setting Every Community Up for Retirement Enhancement) Act by a bipartisan majority (417-3).  The bill currently awaits passage by the Senate.  Many analysts expect it to pass substantially as-is, although there is some squabbling over revised rules for 529 plans (college savings plans).  

The impetus behind the bill is to help rectify the looming retirement crisis – the majority of Americans are not on track with their retirement savings.  One goal of the act is to incentivize employers to put retirement plans in place. 

Some highlights of the bill include:

  • Repeal the maximum age for traditional IRA contributions, which is currently 70½
  • Increase the required minimum distribution (RMD) age for IRA retirement accounts from 70 ½ to 72 
  • Allow long-term part-time workers to participate in 401(k) plans
  • Allow more annuities to be offered in 401(k) plans
  • Parents can withdraw up to $5,000 from retirement accounts penalty-free within a year of birth or adoption for qualified expenses
  • Parents can withdraw up to $10,000 from 529 plans to repay student loans
  • Non-spouse beneficiaries of IRA plans must withdraw all funds from the IRA within ten years (and therefore may have larger tax liabilities than anticipated)

Many of these changes can help future retirees. However, we know that allowing annuities in 401(k) plans could be problematic for many investors.   Annuities seem appealing because they offer a “guaranteed” lifetime income; but there are serious drawbacks.  Annuities are laden with hidden fees, the contracts that operate them are difficult to understand, and they are restrictive in their withdrawal options.  We prefer more liquid and flexible options that give you the full benefit of the compounding effect achieved in pre-tax retirement accounts like traditional 401(k) plans and IRAs.  

If you are a small employer, the new bill offers tax credits for businesses that offer automatic enrollment.  The law also allows small employers to join multiple-employer plans to help reduce the cost-prohibitive nature of offering a 401(k) plan to employees.

Propel Financial Advisors can help individuals with asset selection and allocation in your 401(k) plan, or we can actively manage your portfolio via Fidelity’s BrokerageLink® program.   We also have experience managing 401(k) accounts, SEP IRAs, and SIMPLE IRA’s for small businesses.  Please ask us if you are interested in these services or have questions about how this new law could affect you or your business. 

-Amanda Vaught