How the SECURE Act Impacts Individual Retirement Savers
In 2019, research from the World Economic Forum examined retirement savings shortfalls around the globe and reported, “People should expect to live longer than the pot of money they have saved for retirement, by between eight to almost 20 years on average, with the highest burden on women.” In the United States, the deficit between savings and life expectancy runs about 9.7 years on average. The SECURE Act is intended to help close that gap with new rules that:
Support higher maximums for automatic enrollment defaults. Automatic enrollment has a huge impact on participation, and that can help increase contributions and improve retirement security. The SECURE Act increases the maximum default rate for automatic enrollment from 10% to 15%, after the first year of participation through automatic enrollment.
Change the age for required minimum distribution (RMDs). Required minimum distributions can now be delayed to age 72 for individuals born on or after July 1, 1949. While the age change benefits participants, it did not resolve compliance questions related to RMDs for accounts that have been left behind in a plan.
Remove IRA contribution age limits. Americans can now make IRA contributions throughout their lifetimes so long as they have sufficient taxable income. The benefits of this rule are limited by a change to the rules guiding beneficiary distributions. Under the new law, non-spouse designated IRA beneficiaries must complete the distribution of an IRA within 10 years.
Require lifetime income disclosures. To encourage people to think a little harder about how much they’ve saved – or haven’t saved – for retirement, plan sponsors must now provide lifetime income disclosures. The disclosures will indicate the estimated amount of monthly income participants’ accounts might provide if invested in an annuity offering lifetime income. The Department of Labor is responsible for developing a model disclosure and setting the assumptions that will inform estimates.
Make lifetime income options portable. A 2019 report from the Social Security Board of Trustees estimated that, without action by Congress, the trust fund will be depleted by 2035. Should that occur, he SECURE Act opens up alternative avenues to guaranteed income by allowing participants who choose to invest in annuities and other lifetime income options to rollover the investments from one plan to another or from a plan to an IRA.
Some provisions in the SECURE Act became effective on January 1, 2020. Individual retirement savers should talk with their advisors and decide how they can take advantage of the saving opportunities created by the Act.
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The material in this blog is presented for informational purposes only. Millennium Trust Company performs the duties of a directed custodian, and as such does not sell investments or provide investment, legal or tax advice.