By Matthew Gaude & Shawn McGuire
Here are some numbers to chew on: according to the Employee Benefit Research Institute’s 2019 Retirement Confidence Survey, only 23% of American workers are very confident they have enough money for a comfortable retirement, (1) and 58% of those who have saved have less than $100,000 put away. (2) That’s not good news.
The government is very aware of the dire financial straits of many Americans entering retirement, and now they’re trying to do something about it.
New legislation has been drafted that will hopefully give many people a leg up on saving for retirement. The process for new reforms to make their way through Congress can be long and hit many roadblocks, so there is no guarantee when or how this bill will be passed. If it is, it could be the most significant retirement saving reform legislation in years, especially for seniors.
Building on the Setting Every Community Up for Retirement Enhancement Act (SECURE Act) of 2019, the Securing a Strong Retirement Act of 2020 (unofficially named the SECURE 2.0 Act) (3) strives to help retirees and workers hold on to more of their savings, start saving earlier, and save more.
Here’s a breakdown of the main points and how it can help you.
As a refresher, required minimum distributions (RMDs) are mandatory withdrawals from your 401(k) or traditional IRA. In the past, the age at which you had to start taking your RMDs was 70½. The SECURE Act changed that to 72. The new bill is proposing an even higher increase to age 75. If you’ve already retired by that age and need your savings to live on, you can continue to take withdrawals from your accounts as usual. But if you are planning to work until your mid-70s or longer, you will be able to leave your money where it is and let it grow.
There’s even a proposal to allow retirement accounts with less than $100,000 to be exempt from RMDs, regardless of the age of the account owner. If you were hoping to withdraw less than your RMD to increase growth potential and instead tap into Social Security or other sources of retirement income, this change could help you do that.
Catching Up For Retirement
You’ve probably heard of catch-up contributions—the extra savings you are allowed to contribute to your 401(k) or IRA once you reach a certain age. Right now, at age 50, you can contribute up to $6,500 extra for 401(k)s and $1,000 extra for IRAs.
The new legislation wants to help older workers save beyond that by giving those over 60 the opportunity to save an additional $10,000 per year in their 401(k) or IRA, helping them maximize their final income-earning years.
Increased Saver’s Credit
The Saver’s Credit currently provides a tax credit of either 50%, 20%, or 10% of the contributions you make to eligible retirement plans, up to $2,000 for single tax filers and $4,000 for those who are married filing jointly, depending on your adjusted gross income (AGI). SECURE 2.0 seeks to increase the income thresholds so more people could qualify for the credit, as well as increase the amount of savings that qualify.
Student Loan Help
For younger savers who are also still paying off their student loans, SECURE 2.0 wants to help them harness the benefits of compound interest by allowing employers to contribute to the retirement funds of their student loan-paying employees, even if those employees are not currently contributing to their retirement accounts.
Since employer-sponsored retirement plans are a popular and important way to save for retirement, the government wants to motivate businesses to offer these plans and is proposing increased tax credits for small businesses that start a plan, and a new credit to offset up to $1,000 of employer contributions per employee. (4) The new bill would also require employers to automatically enroll eligible employees in their workplace plan.
To summarize, Here are the main provisions of the Securing a Strong Retirement Act of 2020:
- Promote savings earlier for retirement by enrolling employees automatically in their company’s 401(k) plan, when a new plan is created;
- Create new financial incentives for small businesses to offer retirement plans;
- Increase and modernize the existing federal tax credit for contributions to a retirement plan or IRA (the “Saver’s Credit”);
- Expand retirement savings options for non-profit employees by allowing groups of non-profits to join together to offer retirement plans to their employees;
- Offer individuals 60 and older more flexibility to set aside savings as they approach retirement; and
- Allow individuals to save for retirement longer by increasing the required minimum distribution age from 72 to 75.
This is just an overview of some of the many proposals in this new legislation. The government’s goal is to incentivize working Americans to save early, save more, and prevent a retirement crisis in our country. The bill has a long way to go, but some form of it will likely be passed in the future. We at Live Oak Wealth Management will keep you posted as to what elements of this plan become a reality and what that means for your financial future. If you have any questions or you are motivated to start planning for your retirement, call our office at 770-552-5968 or email email@example.com. Or, if you prefer, you can simply click here to schedule an appointment online.
Matthew Gaude is an *investment advisor representative and the co-founder of Live Oak Wealth Management, a financial services firm in Roswell, Georgia. He serves the planning and investment needs of corporate employees, those approaching or in retirement, and 401(k) plan sponsors. Working first as a commodity broker and then as a Business Development Manager for a national broker-dealer in previous jobs, he has the insight and experience to help clients understand the complexities of the market and implement strategies to minimize risk. To learn more about Matthew, connect with him on LinkedIn or visit www.liveoakwm.com.
Shawn McGuire is a financial advisor and the co-founder of Live Oak Wealth Management, a financial services firm in Roswell, Georgia. He serves the planning and investment needs of corporate employees, those approaching or in retirement, and 401(k) plan sponsors. He has worked in financial services since 2002 in positions ranging from financial advisor to stock broker and portfolio manager. As a CERTIFIED FINANCIAL PLANNER™ professional, he is trained to help clients with virtually all their financial needs. To learn more about Shawn, connect with him on LinkedIn or visit www.liveoakwm.com.
Securities offered through American Portfolios Financial Services, Inc., member FINRA/SIPC. Investment advisory services offered through *American Portfolio Advisors, Inc., a SEC Registered Investment Advisor. Live Oak Wealth Management, LLC is independently owned and not affiliated with APFS or APA.
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