By Matthew Gaude & Shawn McGuire
Are you afraid of outliving your money in retirement? If you said yes, you’re not alone. Running out of money is the number-one fear people have as they transition into retirement. With life expectancy on the rise, policymakers and employers realize they need to start helping retirees manage their money.
On May 16, 2019, the House of Representatives passed the Setting Every Community Up for Retirement Enhancement (Secure) Act. This was passed with bi-partisan support by a count of 417-3. The bill now goes to the Senate for voting. Although the Senate has a few minor differences, the majority of the bill has the same provisions. If passed by the Senate and approved by President Trump, this bill would make it easier for retirees to have a reliable stream of income that lasts through retirement—exciting news for the many Americans who are concerned about stretching their retirement dollars.
While the Secure Act bill proposes over 20 changes, here are 6 major changes that will affect your 401(k) plan.
1. More Annuity Options
Annuities are a type of insurance that guarantees a monthly income in retirement. They’re usually part of pension plans. Annuities aren’t popular 401(k) options because the employer can be sued if the insurance company goes out of business or fails to pay a claim.
Under the Secure Act bill, the liability would be removed from the employer. This means more employers could offer annuities to their employees without having to worry about being held liable for unpaid claims.
2. No More Contribution Age Caps On IRAs
Under the current law, a plan participant can’t contribute to an IRA account past the age of 70½ (a major deterrent for those who are still working later in life). (1) Under the Secure Act, this age cap would be removed.
3. Increased Required Minimum Distribution Age
Currently, people who have money in 401(k)s or other tax-deferred plans must start making required minimum distributions (RMDs) at age 70½, even if they’re still in the workforce. (2)
Under the Secure Act bill, the new mandatory withdrawal age would be 72. This is helpful for those who are still working or are trying to stretch their savings out for a longer retirement.
4. New Additional Plan Features
The new law would require employers to list a participant’s projected monthly retirement income on their 401(k) statements. This projected monthly income would be based on their current account balance and would give plan participants time to adjust their savings rate and better prepare for retirement.
The bill would also allow new parents to make a penalty-free withdrawal of up to $5,000 from their retirement account within the first year of their child’s birth or adoption. This money could then be used to cover child-related expenses.
Under the Secure Act, long-term, part-time workers would be able to finally take part in 401(k) plans. This is great news for women who disproportionately take on part-time work to care for children and aging parents.
5. Lifetime-Income Provision
There’s plenty of advice on how to accumulate wealth using your 401(k), but no one really talks about how to manage your wealth once you retire. The new lifetime-income provision, coupled with annuities, would ensure retirees don’t outlive their money.
For those employers who don’t offer annuities, the bill would allow plan participants to roll their accounts over to an IRA so they could continue contributing to their retirement.
6. Changes To Inherited Retirement Accounts
Under the current law, inherited retirement account distributions can be spread out over the recipient’s lifetime. Under the Secure Act, a recipient would be required to withdraw the money—and pay taxes on it—within a 10-year period.
This doesn’t really affect those who inherit smaller accounts. But for those who inherit larger accounts, taxes will have to be paid over a shorter amount of time, which means a higher tax bill. Surviving spouses and minor children are exempt from this rule.
Your First Step
If you’re concerned about how the Secure Act will affect you on your path to retirement, we’re here to help. At Live Oak Wealth Management, our goal is to bring you clarity and guidance about your financial well-being. We help you make sure you have enough money to last through retirement by taking into account all your financial goals and objectives. To learn more, call our office at 770-552-5968 or email [email protected]. Or, if you prefer, you can simply click here to schedule an appointment online.
About Matthew
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 insights 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.
About Shawn
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.
Any opinions expressed in this forum are not the opinion or view of American Portfolios Financial Services, Inc. (APFS) or American Portfolios Advisors, Inc. (APA) and have not been reviewed by the firm for completeness or accuracy. These opinions are subject to change at any time without notice. Any comments or postings are provided for informational purposes only and do not constitute an offer or a recommendation to buy or sell securities or other financial instruments. Readers should conduct their own review and exercise judgment prior to investing. Investments are not guaranteed, involve risk, and may result in a loss of principal. Past performance does not guarantee future results. Investments are not suitable for all types of investors.
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(2) https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-required-minimum-distributions