Inside The Secure Act: New Retirement Legislation
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If you’ve followed Congress even casually over the past few years, you’re probably aware that there isn’t much that flows through the House of Representatives or the Senate with overwhelming bipartisan support.
On Thursday, May 16 the House defied expectations, and their recent track record, by passing the SECURE act by an overwhelming 417-3 . True to form, though, the SECURE act stands for the “Setting Every Community Up for Retirement Enhancement Act of 2019”.
If the Senate and House agree on the bill as it stands now, it could end up being a big deal that changes the way lots of people save for retirement, invest in 401(k)s, IRAs, and other retirement accounts, and even the way they tackle student loan debt.
The bill is expected to move to the Senate this session and might be merged with a bill from the Senate Finance Committee, S.3471 : Retirement Enhancement and Savings Act of 2016. Doesn’t quite have the same ring to it, does it?
If the bill does pass, it would be the first big retirement legislation since the Pension Protection Act in 2006 .
Rep. Richard Neal of Massachusetts, and chairman of the House Ways and Means Committee, introduced the bill and said on Twitter , “Let us not forget what is of most importance in the #SECUREAct: fixing our nation’s retirement crisis, helping workers of all ages save for their futures and reversing unfair and unexpected high taxes on #GoldStar families.”
Retirement saving might be changing in a big way if SECURE goes into effect. Here are 5 ways the SECURE act might change how you save for your future.
Paying Off Student Loans With Funds from a 529
A 529 plan is “a tax-advantaged savings plan designed to encourage saving for future education costs.”
There are two ways to save for education expenses with a 529: prepaid tuition plans and education savings plans. The plans are offered by all 50 states and Washington D.C. and can be used for qualified higher education expenses—$10,000 can be spent “per year per beneficiary for tuition at any public, private, or religious elementary or secondary school.”
A 529 might be appealing because your earnings on investment aren’t subject to tax and if withdrawals are made for qualified expenses, you won’t pay a penalty on them either.
The SECURE Act would let you spend $10,000 from a 529 account on student loan debt.
More Access for Long-term, Part-time Employees
Part-time workers are people who work less than 35 hours a week. Some statistics put the part-time employment population at 27.5 million people. Right now, 401(k) plans are allowed to exclude employees who work less than 1,000 hours a year.
SECURE would grant these folks 401(k) access , as long as they work more than 500 hours a year (about 10 hours a week), but less than 1,000.
Incentives and Credits for Small Business Employers
In 2018 there were 30.2 million small businesses in the US and 58.9 million small business employees according to the Small Business Administration (SBA) . A 2017 survey by the Pew Charitable Trusts found that just 53% of small and midsize employers offered retirement plans.
The reasons for not offering retirement plans can be as diverse as the businesses that make up this vital sector of the American economy. Retirement plans and accounts can be complicated to set up, and according to the Pew
survey , many small business owners think their employees value higher salaries over a retirement account.
The SECURE Act aims to increase small business participation by giving small business owners a larger tax credit for opening retirement plans. SECURE also aims to remove existing restrictions that may limit small businesses when they want to buy into retirement plans with other small businesses. Whether you’re a small business owner or work for a small business, SECURE might give you some new options in the future if it passes.
Tax Free Withdrawals for New Parents
In 2017, the USDA found that raising a child, on average, could cost around $9,000 or about $13,000 a year depending on the income of the parents. New parents who are adopting can face the same costs, as well as court fees, and lawyer fees, or private adoption fees that can easily climb into the thousands of dollars.
The SECURE act tries to ease some of this burden on new parents by allowing a one-time, tax-free withdrawal of $5,000 from retirement accounts. This might be good news for some expecting parents and those looking to adopt—as it currently stands, if you were to withdraw money before reaching 59½ years of age, there is a 10% early withdrawal penalty in addition to income tax on the amount you take out.
New Age Rules for Contributions and Disbursements
Traditional Individual Retirement Accounts (IRA) have an age limit of 70½ for regular contributions.
But people are working longer and are able to contribute to their retirement accounts longer. The percentage of workforce participation from those over 65, people who were either working or looking for work, grew from 10.8% in 1985 to 19.5% in March of 2018 . SECURE would remove these restrictions, letting workers who work longer contribute longer to a traditional IRA.
SECURE would also raises the minimum distribution age from 70½ to 72. The minimum distribution is “the minimum amount you must withdraw from your account each year .” Because folks are working longer, SECURE would add an extra two years before these funds must be withdrawn.
There Might Even Be More Student Debt Relief Legislation on the Horizon
Though it’s not part of SECURE, there’s a bill in committee now that was introduced by Senator Ron Wyden of Oregon that ties together student loan debt repayment and retirement accounts.
Bill S.3771, the Retirement Parity for Student Loans Act would help people with student loans pay them and save. Wyden said on Twitter when he introduced the bill, “Because of skyrocketing debt, young Americans are unable to save for their financial futures because they’re paying off the cost of college. I’m introducing a bill that will allow recent grads to save for retirement and repay their student loans.”
The basic gist of the bill is that your employer would match your student loan payments as if you’d made the contribution to a qualified retirement account. For example, say if you commit 5% of your salary to a 401k, your employer might also make matching contributions up to a certain limit. Under the Secure Act, employers can create similar programs for student loan debt.
Wyden’s bill is still in committee, and hasn’t seen a vote yet, but there does seem to be some bipartisan support for it as well.
On to the Senate
The SECURE Act doesn’t have a date for a vote in the Senate yet, and it’s not clear when it would hit the President’s desk if it does pass.
But, both sides seem hopeful that the bill will pass with bipartisan support in the Senate the same way it did in the House. If it does, it could mean some big changes to the way we fund retirement accounts for the first time in 13 years, and it just might prove that Congress can work together (at the very least they’ll have a bill with a catchy name that’ll stick in most folks’ minds).
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