Congress is embarking on changes to retirement rules.
The House passed the SECURE Act by an overwhelmingly bipartisan vote of 417-3 last month. The Setting Every Community Up For Retirement Enhancement Act of 2019 (SECURE Act) is now under consideration in the Senate. While the exact time frame for passage is unknown, there are a number of emerging broad concepts that enjoy bipartisan support.
What does that mean for the individual retirement saver? The answer will obviously vary depending one’s age and the complexity of their financial situation. Indeed, some may want to consult a financial advisor if their circumstances are particularly complicated or if they're nearing retirement.
But for most people, there are three general areas addressed in the legislation worth considering:
What area applies to you and the degree to which you may want to adjust your planning will depend on your individual circumstances.
If you are one of the nearly 60 million people employed by small business in this country, but haven’t had access to a 401(k) retirement savings plan, that could change.
The legislation, as proposed so far, would make it easier for more employers, especially smaller ones, to offer 401(k) retirement savings plans. Businesses would be offered a tax credit to help cover the costs of starting an automatic-enrollment retirement plan. Small businesses could also band together to set up and offer 401(k) plans through a third party to help them manage fiduciary responsibilities and costs on an easier basis than exists today.
If such changes mean your employer will probably start offering a 401(k) plan, you’ll likely want to take advantage of it. ( Learn more: Why saving for retirement is important )
If you already have some form of retirement savings plan, either through an individual retirement account (IRA) or a 401(k) savings plan through your employer, you’ll want to check dates and your plans.
The legislation, as proposed, would likely push back the age at which you will be required to start withdrawing money from those accounts. It is currently at 70½ years of age. That means savings can grow longer. ( Related: What you need to know about retirement plan limits )
The legislation could also remove or push back the 70½-year-old age limit on contributing to a traditional IRA. That rule essentially discouraged retirement savings in IRAs for people who continued to work later in life.
Obviously, the importance of such age-rule changes will vary depending on your age. Younger folks will want to be cognizant of the rules in terms of long-term planning, but will likely want to stay the course on steady investment plans . Those closer to retirement may want to consult their financial advisor about specific ways to take advantage of any changes relative to their particular financial circumstances.
The proposed rules would essentially allow more in the way of annuities to be offered in retirement plans.
Generally, an annuity is a financial contract where, in exchange for a lump-sum payment or a series of payments, the annuity will make payments to you at a future date or series of dates. Annuities tend to appeal to those who may be concerned about outliving their savings and want a guaranteed income stream in retirement.
But annuities can vary widely in type and function. And what is appropriate for one person may not be appropriate for another. Many opt to consult a financial advisor for advice about what may fit into a specific retirement plan. (Related: Does an annuity fit into your retirement plan? )
But a good first step is to get a solid understanding of what annuities offer.
The legislation is still in a fluid state and may include other provisions at the end of its possible passage that could have an effect on finances and planning.
For instance, there are provisions under discussion about allowing an additional penalty-free retirement plan withdrawal option for the birth or adoption of a child. And tax treatment for inherited retirement plans are also being debated.
Regardless of the final form, and even in the absence of legislative changes altogether, the three items above are steps many people should consider taking if they're concerned about their retirement.
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