Personal Finance

Big changes coming in how you save for retirement

Key Points
  • The Secure Act was included in the $1.4 trillion spending bill approved by the House of Representatives on Tuesday.
  • The measure now heads to the Senate, where it's expected to be approved this week.
  • Changes include requiring businesses to let long-term, part-time workers become eligible for retirement benefits, and making it easier for small businesses to band together to offer retirement plans.

The biggest legislative changes to America's retirement system in 13 years appear to be headed for final approval by Congress.

On Tuesday, the House passed a $1.4 trillion spending bill that includes the bipartisan Secure Act, which aims to increase the ranks of retirement savers and the amount they put away. The measure now will head to the Senate, where approval is expected this week before lawmakers head home for the holiday recess.

"The Secure Act has been years in the making," said Paul Richman, chief government and political affairs officer at the Insured Retirement Institute. "It's filled with common-sense measures to strengthen retirement security for millions more American workers."

The rising sun illuminates the United States Capitol Building in September in Washington, DC.
Samuel Corum | Getty Images News | Getty Images

Changes include making it easier for small businesses to band together to offer 401(k) plans and offering tax credits to those firms that do; requiring businesses to let long-term, part-time workers become eligible for retirement benefits; and repealing the maximum age for making contributions to traditional individual retirement accounts (right now, that's 70½).

It also would raise the age when required minimum distributions, or RMDs, from certain retirement accounts must start to 72, up from 70½.

Additionally, the measure aims to allow more annuities in 401(k) plans by eliminating companies' fear of legal liability if the annuity provider fails or otherwise doesn't deliver. While companies already can offer annuities in their 401(k) lineups, just 9% do, according to the Plan Sponsor Council of America.

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The provisions generally are funded by modifying the rules governing inherited retirement accounts. Instead of heirs being able to take required withdrawals over the course of their life, the money would need to be withdrawn within 10 years of the original account owner's death.

"That's obviously a negative for inherited traditional IRAs and for Roth IRAs that used to stretch over the beneficiary's lifetime," said certified financial planner Mike Hennessy, founder and CEO of Harbor Crest Wealth Advisors in Fort Lauderdale, Florida.

Meanwhile, the legislation comes as experts warn that many Americans are falling short with their retirement savings. For example, among pre-retirees ages 55 to 64, the median 401(k) account balance — half are above, half are below — is $61,700, according to Vanguard's 2019 How America Saves Report. For those ages 45 to 54, it's $40,200.

Additionally, roughly a third (38%) of U.S. adults say they have never had a retirement account, according to a recent survey. It was most pronounced among Gen Xers (36%) and households with annual income below the $30,000 mark (58%).

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