Keep your eye on the on the Securing A Strong Retirement Act, aka Secure 2.0 (HR 2954). The bill passed the House on March 30 with overwhelming bipartisan support and now heads to the Senate. The bill attempts to make it easier for more Americans to save for retirement, and for retired Americans to hold on to the funds that must last for a lifetime. If enacted in its present form, the legislation would make scores of changes to the rules governing employment-sponsored retirement plans. Here are some of the highlights.
Annuities Play A Bigger Role In Qualified Plans
This is one of the legislation’s more controversial provisions. Anyone with a 401K who does not select a specific investment option could have some or all funds placed in an annuity. It would also remove the required minimum distribution for life annuities. Up to 50% of the participant’s contribution could be in an annuity. A plan participant would have six months to opt out and choose a different investment option.
Proponents of this measure believe allowing annuities a more central role in qualified plans will provide a secure income stream in retirement. Dan Zielinski of the Insured Retirement Institute says: “People have anxiety about running out of money in retirement, so this would be an option to alleviate that anxiety and give them a stream of income.” On the other hand, detractors worry about lack of liquidity, excessive surrender fees, and failure to keep pace with inflation. “Putting too much in an annuity could be a risk from a buying-power perspective, because most annuities don’t have annual cost-of-living adjustments,” says Malike Lee of Felton & Peel Wealth Management.
Mandatory Age for RMDs Increase
The bill would raise the mandatory age for taking required minimum distributions, reflecting our greater longevity and allowing more time for tax-deferred savings to accumulate. The age would increase to 73 starting in 2023; 74 in 2030; and 75 in 2033.
Catch-Up Contributions Increase
Individuals ages 62, 63 and 64 could make catch-up contributions to their 401K of up to $10,000. The current figure is $6,500.
Student Loan Debt Removed As A Savings Obstacle
Starting in 2023, employers could contribute to the 401K of an employee who is paying off student loans, matching the dollar amount of the loan payment.
National Database Created for Lost Retirement Accounts
Every year thousands of people do not collect their rightful retirement benefits because they do not know how to track down their “lost” retirement plans. This can happen when a former employer ceases to exist, merges with another company, or separates into different component companies. Under the legislation, the Department of Labor would maintain a nationwide, searchable online database of “lost” retirement accounts.
There is more detailed information available about the above changes and others that would be created under the Securing A Strong Retirement Act. For more information click here.
To read the full text of the House bill, click here.
Saving for retirement is a challenge. So is making your savings last once you are retired. A financial professional can help you to meet these challenges. If you do not have a financial advisor, call The Karp Law Firm at 561-625-1100 or email us at klf@karplaw.com and we can give you the names of several that we know and trust.
