According to an annual study by the Federal Reserve, only about one-third of all non-retired Americans believe that they’re on the right savings path with their retirement plans. About a quarter don’t have any retirement plan or pension, and the remaining 40 percent aren’t saving enough.
For all but the one-third that are confident in their savings plan for their golden years, retirement can be anything but golden.
In an effort to address this “retirement crisis” of sorts, the U.S. House of Representatives recently passed the Secure Act, a bill that aims to make it easier for Americans to save for retirement and more feasible for employers to offer such options. And while you’re probably aware that the current U.S. House presently enjoys a Democratic majority, know that this bill has strong bipartisan support.
The Trump Administration has yet to offer any formal comments on the piece of legislation, but it’s expected that if it passes the Senate and reaches his desk, the President will sign it into law. Noting this, and its strong likelihood of becoming a law, it is worth examining the Secure Act in a bit of greater detail.
The bill aims to make it easier (and cheaper) for businesses to offer 401K plans. It pays close attention to small and medium-sized businesses that may be hesitant to invest the necessary resources into such plans. It’s being heralded as the most significant retirement savings legislation since the Pension Protection Act of 2006.
It aims to incentivize small and medium-sized businesses to offer such plans by making it easier for companies without commonality to join the same plan, thus permitting them access to lower cost plans with lower administrative fees.
The potential affects are manifold. According to CNBC, the Secure Act would do the following:
- Repeal the 70.5 maximum age for traditional IRA contributions.
- Increase the minimum distribution age for retirement accounts from 70.5 to 72.
- Allow long-time part-time workers access to 401K plan participation. (Under the way the Act is currently written, any employee who has been with a company at least three years and works more than 500 hours a year would be eligible for 401K programs.)
- Allow more annuities for 401K plans.
- Allow parents to withdraw as much as $5,000 worth of penalty-free dollars from retirement accounts within a year of welcoming a new child — be it by natural birth or adoption — for qualifying expenses.
- Allow parents to withdraw up to $10,000 from traditional 529 plans for the purpose of repaying student debt
The 401K has long been considered the most effective retirement option both for employers and employees thanks to its tax advantages, automatic paycheck distribution and company match. Any 401K allotment is made pre-tax, helping workers reduce their total taxable income. And being that money is withdrawn right from a worker’s paycheck, it goes to their retirement account before they have the chance to spend it. (Workers just have to be sure to gradually increase the percentage they distribute the more income they earn over time.)
Finally, many businesses offer a company match on 401K distributions, which is essentially free money. Aside from staying up to date with the percentage of your pay you allocate toward retirement, the next hardest part is coming up with the right investment mix to help you meet your financial goals.
Like we said, the Secure Act still has a couple of hurdles to clear, but being that it has bipartisan support and has already cleared the House, signs are pointing in the right direction for this piece of legislation to become law.
Regards,
Ethan Warrick
Editor
Wealth Authority
