The Setting Every Community Up for Retirement Enhancement Act (SECURE Act) recently passed in the House of Representatives by a margin of 417-3 last Thursday. The bill is slated to be successfully ratified into law by the U.S. Senate later in the year in a rare moment of bipartisanship.
The SECURE Act marks the most momentous legislative change in retirement planning since the Pension Protection Act of 2006. That said, the SECURE Act that passed in the House of Representatives recently is a necessary and expected change to the U.S. retirement system.
Why? Because the Tax Cuts and Jobs Act passed in President Trump’s first year in office effectively punted on retirement reform. The SECURE Act, by contrast, would allow for 29 fresh provisions or groundbreaking changes to existing retirement protocol.
The way that all of this will play out legislatively is fairly predictable. The Senate has a sister bill called the Retirement Enhancement Securities Act (RESA), which will interplay with the U.S. House of Representatives SECURE Act. Aspects of the Senate bill will make their way into, and be modified by, the House bill and vice versa over the coming weeks.
This reconciliation process is needed to harmonize the bills with each other and with what average Americans want out of their retirement plans. The bill that makes it out of reconciliation is expected to remove IRA age limits, expand the start of required minimum distributions (RMDs), and enhance the possibility that more employers set money aside for retirement plans.
Both the SECURE Act and RESA are meant to address social security funding issues and out-of-control pharmaceutical costs in particular and healthcare expenses more generally. The Medicare system is thought to be under serious strain at present since about a third of Americans don’t set anything aside for retirement and rely on the system to the exclusion of everything else.
So, how can the SECURE Act and RESA make things better? The first salient aspect of both of these plans is that each enhances the ability of small employers to create retirement plans for their employees. The bills make multi-employer plans easier to undertake, and each plan allows smaller employers the opportunity to create 401(k) retirement plans with fewer worries about fiduciary oversight.
The SECURE Act will also delay the RMD (minimum distribution) requirement to at least 72 years of age. The current RMD cutoff is 70.5 years of age. The surprising thing about these upcoming retirement changes is that the Senate is attempting to push the RMD requirement to beyond the House’s ambitious uptick and set the RMD requirement to 75 years of age.
Another positive aspect of these upcoming changes to retirement planning in the United States is a removal of age limits on IRA contributions. Previously, retirement savings were effectively discouraged insofar as individuals who continued to work into their seventies had a harder time making contributions. In the old system, once you hit the age of 70.5 years old you were disallowed any contribution to an IRA, though you could still contribute to a Roth IRA past this arbitrary cutoff. Section 114 of the House’s SECURE Act would shore up older workers’ ability to make regular IRA contributions by axing the aforementioned age limitation.
But since every new piece of legislation has to include both a stick and a carrot in order to correctly balance incentives that Americans will face when planning for retirement, both the SECURE Act and Resa feature some kind of tax credit for automatic enrollment. These tax credits will redound to small employers. The aim is greater accessibility.
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