Legislative leaders and the White House erected the most significant reform to the retirement industry since 2008 where The SECURE Act (Setting Every Community Up for Retirement Enhancement) strengthens retirement security for all Americans: the rising retiree, workplace employee, business owner and the independent contractor (or better known as the business of one). The newly passed SECURE Act, with its increased complexity and potential savings opportunities, should further push today’s investor towards considering working with an independent advisor.
With almost 30 new provisions and rule updates, the client is on a complex path of navigating these changes, anticipate their financial, professional and personal life events situations while setting themselves up for success. It presents a great window for the DIY investor to take stock and develop a new mindset in considering professional advice to build and protect their net worth. While looking after one’s finances has been long considered stressful, the outsourcing of this activity may lead to greater happiness according to a recent study completed by a Harvard Professor.
Here are some of the key highlights for the upcoming changes presented in the SECURE Act:
IRA / Retirement
- Folks are now working longer and want to continuing contributing to their IRAs. So you may continue contributing to your IRA after 70.5.
- People are taking longer to retire – RMD jumps to 72 – if you have not turned 70.5 years of age, you are not required to take your RMDs until 72. Again, reflecting the effect, that are working longer and not required to dip into retirement savings.
- Stretch IRA – so long dear friend, IRA distributions from inherited IRA must be completed over a 10-year period vs over their life expectancy.
401k / Retirement
- Provision of safe harbor for selecting an annuity or guaranteed retirement income provider in 401k plans – in a major win for the insurance industry, annuities may now be deployed as an investment option in 401k plans under safe harbor. This will be tricky for the plan sponsor and most will require some advisory support.
- 401ks are receiving more attention – The contribution levels were raised including make-up contributions for individuals that are 50 and older so $19,500 and $26,000 respectively.
- The growing new GIG Economy receives some attention – there are now expanded options for companies (through MEPs) to collaborate and create qualified plan arrangements to encourage long-term, part-time employee participation. The more folks that are covered, the better for all.
- Auto-enrollment – companies are incentivized to adopt this option within their 401k plans which ultimately benefits new/younger employees.
- 529 plans have been expanded to include deduction for additional qualified tuition and related expenses.
- Distributions may also be used to repay qualified education loans up to $10,000.
Whether you are an individual, family, business owner, employee or 401k plan sponsor, people require more help now to navigate these changes and to anticipate where they will be in the future in making these decisions. Financial planning is a time-consuming and ever changing process due to the flood of information coming at the investor – media, family, friends, multiple financial providers and their employer. Not to mention, gaining a fresh perspective is a very good thing.
As we mentioned earlier, many individuals find the financial planning and saving process boring, tedious not to mention stressful. Harvard Business School Professor Ashley Whillans claims by avoiding having to do boring activities and possibly outsourcing or relying on a third party, we will be much happier.
We always suggest seeking advice from a qualified investment professional who can help with the decisions and provide technology to support your decision process. They will coach and hold you accountable while posing the difficult questions about finances and your future where your inner voice will tend to minimize or defer for another time.