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Both Congressional (house) parties very much in favor of this legislation in a March, 2022 vote. Now, there are only a few days remaining for a vote in this calendar year. And a revised version has been introduced. A wait and see. Add to the story, please. Updates as available.....
Retirement. People unprepared. NO ONE who is an ordinary working stiff can put away enough money to retire on. The traditional pension has disappeared. And it's not the working stiff's fault.
There are several parts of the Secure Act 2.0 that improve the current situation on retirement saving.
One is to ensure workers to have access to some form of retirement saving. Many people who work for small business (full time or not) do not have 401(K) plans. Today small business owners do not offer retirement plan to their employees since they bear the cost to a plan administrator such as Fidelity, BlackRock, and others. Outside of 401(k), the $ amount allows in traditional IRA is no where near that amount allow in 401(k).
Nearly half of working-age Americans—57 million people—don’t have access to an employer-sponsored retirement savings plan, according to new AARP research. Workplace plans are by far the easiest, cheapest way to save for retirement, and many Americans who can’t save at work aren’t saving at all.
And there are more that I will add to this as I read further.
When I was still working, I was the only paid employee. And I moved around a lot. At every location, the treasurers were all VOLUNTEERS. I simply asked the treasurers to sign the required paperwork to establish a 403b. They did not care which investment house I chose. They all simply withheld my chosen amount from each paycheck. The treasurers withheld no taxes. I had to send quarterlies to the IRS as if I were a frikkin' business. But there was never any administrative cost borne by the employers. And the chosen investments were all selected by Yours Truly. There was never any employer-match, though.
*A side note: when I chose to begin taking SS, I ran into some resistance from the lovely people at SS, who claimed I would have to accept reduced benefits. Why? I had not paid in, at several jobs. I told them otherwise. I had to go in, in person, with the 2 most recent tax returns. The Supervisor then bumped me up to my EXPECTED monthly amount. Great system: treasurers who don't have to do what treasurers are supposed to do.
All congress has to do is add parity for TIRAs and RIRAs regarding amounts for those that have no access to 401Ks. But they refuse to do what is the right thing, even though one side has all 3 bodies to send it thru with no contest. Small businesses will never be able to provide matching like larger companies do.
An initial overview of several areas relative to Roth's, RMD's, 529 to Roth conversions, etc. More defined information will be available in the near future; so, you may choose to investigate areas of interest to your circumstances. The below link is to Forbes and shouldn't cause any article access problems. Tidbits of investment related, Secure ACT 2.0
Section 107: raising retirement age. This is a tax break for high earners; Forbes notes: "This provision mostly impacts people with wealth who don’t need their RMD and can leave the money to grow."
It might have made more sense to treat IRAs and 401(k)s the same - don't require RMDs so long as you are working. Otherwise, you are retired and thus should be drawing from retirement accounts.
Wonder why increasing the age to 75 won't happen for a decade? It's because these laws only have to look ten years out when considering budget impact. This change in RMD age is said to be the most costly provision of the SECURE Act, but most of that cost escapes scrutiny. Accounting gimmick. (See also JCT analysis of SECURE 2.0 Act.)
Sections 108, 109: increasing catch up amounts. According to a current Vanguard study, only 2%-3% of those earning under $100K max out even with the limits already in place. 37% of those earning over $100K max out.
Section 202: raising QLAC limits. Currently $145K (inflation indexed) up to 25% of account balance, will be raised to $200K (inflation indexed), with no percentage cap. QLACs are basically insurance policies against living "too long". There is a strong correlation between income and longevity.
Section 325: No more RMD for Roth 401(k)s. This section comes under Title III - Simplification and Clarification of Retirement Plan Rules. There's a lot of good cleanup in this Title. Section 325 makes the RMD treatment of Roth 401(k)s and Roth IRAs the same. Complete simplification would have made the treatment of RMDs the same for everything - Roths and Traditionals, employer plans and IRAs.
Being able to leave more money in tax-sheltered accounts mostly benefits those who do not need to take money from those accounts. So while this section doesn't add benefits for the better off, it doesn't address this disparity of benefits either.
Sections 603 and 604 come under Title VI - revenue provisions. They are more accounting gimmicks to make it look like tax revenue is being increased. By moving some contributions (high wage earner catch ups and some employer matches) from traditional to Roth, these provisions increase immediate revenue while moving the costs largely outside the 10 year budget window. At best, the present value of those costs is break even; more likely these changes are revenue losers.
Section 603: High earner catch up provisions must be Roth. Since this doesn't affect anyone earning $145K (inflation adjusted) or more and rhus constitutes a new restriction on high earners, simple logic says this is not a change that benefits high earners. But it's not the onerous provision that Forbes suggests. Effectively it is a forced Roth conversion.
Higher wage earners rejoiced when they were finally permitted to do Roth conversions starting in 2010. While those conversions were not forced, converting some savings was generally regarded as a positive. Especially since pre-paying taxes enables one to enhance the post-tax value of tax-sheltered accounts. https://www.journalofaccountancy.com/issues/2010/jan/20091743.html
This legislation has much to commend it, including changes that encourage participation and make it easier to participate. Though in terms of dollars and cents, it is skewed toward those who are already contributing and can afford to contribute more.
I found this on LTCI premiums from tax-deferred plans from KPMG summary. However, meaning of "high-quality" LTC plan isn't clear, so we have to wait for clarification.
Section 334, Long-term care contracts purchased with retirement plan distributions. Section 334 permits retirement plans to distribute up to $2,500 per year for the payment of premiums for certain specified long term care insurance contracts. Distributions from plans to pay such premiums are exempt from the additional 10 percent tax on early distributions. Only a policy that provides for high quality coverage is eligible for early distribution and waiver of the 10 percent tax. Section 334 is effective 3 years after date of enactment of this Act.
Excess funds from 529s can go to Roth IRAs of the beneficiary (2024- ). Taxes and penalties won't apply to these rollovers. Several limitations apply: 529 must be 15+ years old; only the money contributed or earned 5 years prior to rollovers is eligible; normal annual contribution limits for IRAs apply; but there are no income limits or earned income requirements; lifetime maximum transfer is $35K. https://ybbpersonalfinance.proboards.com/thread/18/college-529?page=1&scrollTo=877
Comments
One is to ensure workers to have access to some form of retirement saving. Many people who work for small business (full time or not) do not have 401(K) plans. Today small business owners do not offer retirement plan to their employees since they bear the cost to a plan administrator such as Fidelity, BlackRock, and others. Outside of 401(k), the $ amount allows in traditional IRA is no where near that amount allow in 401(k). And there are more that I will add to this as I read further.
*A side note: when I chose to begin taking SS, I ran into some resistance from the lovely people at SS, who claimed I would have to accept reduced benefits. Why? I had not paid in, at several jobs. I told them otherwise. I had to go in, in person, with the 2 most recent tax returns. The Supervisor then bumped me up to my EXPECTED monthly amount. Great system: treasurers who don't have to do what treasurers are supposed to do.
The below link is to Forbes and shouldn't cause any article access problems.
Tidbits of investment related, Secure ACT 2.0
https://assets.kpmg/content/dam/kpmg/us/pdf/2022/12/tnf-secure-act-section-by-section-dec20-2022.pdf
Full text of bill: https://www.appropriations.senate.gov/imo/media/doc/JRQ121922.PDF
Since Forbes offered opinions about some of the sections, I'll try to explain Kiplinger's observation that "other [supporters of the legislation] have expressed concern that some provisions in the SECURE 2.0 Act of 2022 primarily benefit high-income earners."
https://www.kiplinger.com/retirement/bipartisan-retirement-savings-package-in-massive-budget-bill
Section 107: raising retirement age. This is a tax break for high earners; Forbes notes: "This provision mostly impacts people with wealth who don’t need their RMD and can leave the money to grow."
It might have made more sense to treat IRAs and 401(k)s the same - don't require RMDs so long as you are working. Otherwise, you are retired and thus should be drawing from retirement accounts.
Wonder why increasing the age to 75 won't happen for a decade? It's because these laws only have to look ten years out when considering budget impact. This change in RMD age is said to be the most costly provision of the SECURE Act, but most of that cost escapes scrutiny. Accounting gimmick. (See also JCT analysis of SECURE 2.0 Act.)
Sections 108, 109: increasing catch up amounts. According to a current Vanguard study, only 2%-3% of those earning under $100K max out even with the limits already in place. 37% of those earning over $100K max out.
Section 202: raising QLAC limits. Currently $145K (inflation indexed) up to 25% of account balance, will be raised to $200K (inflation indexed), with no percentage cap. QLACs are basically insurance policies against living "too long". There is a strong correlation between income and longevity.
Section 325: No more RMD for Roth 401(k)s. This section comes under Title III - Simplification and Clarification of Retirement Plan Rules. There's a lot of good cleanup in this Title. Section 325 makes the RMD treatment of Roth 401(k)s and Roth IRAs the same. Complete simplification would have made the treatment of RMDs the same for everything - Roths and Traditionals, employer plans and IRAs.
Being able to leave more money in tax-sheltered accounts mostly benefits those who do not need to take money from those accounts. So while this section doesn't add benefits for the better off, it doesn't address this disparity of benefits either.
Sections 603 and 604 come under Title VI - revenue provisions. They are more accounting gimmicks to make it look like tax revenue is being increased. By moving some contributions (high wage earner catch ups and some employer matches) from traditional to Roth, these provisions increase immediate revenue while moving the costs largely outside the 10 year budget window. At best, the present value of those costs is break even; more likely these changes are revenue losers.
Analysis of earlier but similar Senate Bill (EARN):
https://www.crfb.org/blogs/senate-retirement-bill-would-cost-84-billion-without-gimmicks
Section 603: High earner catch up provisions must be Roth. Since this doesn't affect anyone earning $145K (inflation adjusted) or more and rhus constitutes a new restriction on high earners, simple logic says this is not a change that benefits high earners. But it's not the onerous provision that Forbes suggests. Effectively it is a forced Roth conversion.
Higher wage earners rejoiced when they were finally permitted to do Roth conversions starting in 2010. While those conversions were not forced, converting some savings was generally regarded as a positive. Especially since pre-paying taxes enables one to enhance the post-tax value of tax-sheltered accounts.
https://www.journalofaccountancy.com/issues/2010/jan/20091743.html
This legislation has much to commend it, including changes that encourage participation and make it easier to participate. Though in terms of dollars and cents, it is skewed toward those who are already contributing and can afford to contribute more.
Thank you.
Section 334, Long-term care contracts purchased with retirement plan distributions. Section 334 permits retirement plans to distribute up to $2,500 per year for the payment of premiums for certain specified long term care insurance contracts. Distributions from plans to pay such premiums are exempt from the additional 10 percent tax on early distributions. Only a policy that provides for high quality coverage is eligible for early distribution and waiver of the 10 percent tax. Section 334 is effective 3 years after date of enactment of this Act.
https://assets.kpmg/content/dam/kpmg/us/pdf/2022/12/tnf-secure-act-section-by-section-dec20-2022.pdf
Excess funds from 529s can go to Roth IRAs of the beneficiary (2024- ). Taxes and penalties won't apply to these rollovers. Several limitations apply: 529 must be 15+ years old; only the money contributed or earned 5 years prior to rollovers is eligible; normal annual contribution limits for IRAs apply; but there are no income limits or earned income requirements; lifetime maximum transfer is $35K.
https://ybbpersonalfinance.proboards.com/thread/18/college-529?page=1&scrollTo=877
Congress just approved 401(k) and IRA changes
secure-act-2-0-retirement-changes-401k-roth-ira/
Non-paywall article:
congress-just-approved-401-k