5 Ways Your Retirement Plan Could Change This Year

Back in May, the House voted 417–3 in favor of the SECURE Act, which is the first major retirement legislation since the Pension Protection Act back in 2006. The bill itself has almost 30 new provisions or big changes, and while the Senate still has to vote on it, some form of the bill is likely to pass during this current term. This week’s video focuses on five proposed changes that we think are most relevant.

First is an increase in the required minimum distribution (RMD) age. Right now, you’re required to take a yearly minimum from your retirement accounts and pay taxes on that amount during the year you reach age 70½ and beyond. This bill would raise that to age 72. The Senate version would actually push it out further, to age 75. This could be helpful to people who are still working after age 70, or otherwise in a high tax bracket, and those who want to try to minimize the RMD tax bite.

Next is the removal of the age limitation on traditional IRA contributions. For many years now, there’s been a rule that you can’t put money in a traditional IRA beginning with the year you reach age 70½—basically discouraging retirement saving in an IRA (although, oddly enough, you can still contribute to a Roth). Section 114 of the SECURE Act would repeal the age limits, allowing everyone with earned income to contribute.

And speaking of IRAs, the SECURE Act would remove the stretch provision for non-spousal inherited retirement plans like traditional and Roth IRAs, 401(k)s, etc. In the past, as a non-spouse beneficiary of those accounts, you could spread the required distributions over your own life expectancy. The House version of the bill would require beneficiaries to distribute the entire account over ten years. The Senate version would allow any IRA with less than $450,000 to still be stretched.

Another feature would allow for more annuities to be offered inside of retirement plans by placing the fiduciary burden on insurance companies to provide employers with the right products for their employees. This, in my opinion, is a pretty clear signal from Congress that they believe annuitized income can play an important role in a retirement plan.

And finally, it would give access to retirement plans to small employers by allowing them to band together to set up and offer 401(k) plans with fewer costs and fiduciary liability concerns. This is big because many small employers offer no retirement plans at all, leaving savings up to individuals.

Of course all of this is still in the proposal stage right now, but with so much support from both sides it’s very likely we’ll see many or most of these changes pass this year. You may have some new options to consider, so make sure to talk with your advisor and get your plan up to date so you don’t miss out!