What do you think of the SECURE Act (besides, “boy, it’s title is really tacky”)? Published by Jane the Actuary View all posts by Jane the Actuary
10 thoughts on “Forbes post, “Will The SECURE Act Make Your Retirement More Secure?””
The provision of the SECURE Act that “accelerates” distributions from IRAs and 401(k)s has not gotten much comment. For inherited IRAs and 401(k)s, the required distribution for a person who inherits the IRA/401k will be 10 years instead of life-expectancy (with exceptions for spouses of the IRA owner/employee, disabled or chronically ill individuals, individuals no more than 10 years younger than the IRA owner/employee, and children of the IRA owner/employee who have not reached the age of majority). For those whose wealth exists largely in an IRA/401(k)–wealth accumulated as wage slaves–changing the rules now seems unfair. Adult children of these wage slaves–the future beneficiaries of the IRB/401k–are not doing so well. A more equitable source of funds to pay for the SECURE Act would be elimination of the carried interest deduction, which is a special interest loophole that benefits private equity and hedge fund financiers. Or maybe to lower the amount that is exempted from estate tax (now $11.4 million for singles and 22.8 million for couples), which benefits the non-wage slave, truly wealthy.
This is halarious in that just a couple years ago had the DOL had their way, annuities would not be allowed in IRA’s and their advisor still be able to continue providing advice while receiving compensation. Now they’re going to be available in the company sponsored plans!
Diana, you are spot on with your wage slave comment, however, I respectfully disagree with your solution as I see it as being based upon the idea that the purpose of government is to play Robin Hood and redistribute from one class to another. This is not a Marxist country, or at least it wasn’t in its founding, and the idea of providing benefits or placing burdens on fellow countrymen on the basis of their gender, color or class is abhorrent to me.
Put more simply, why should anyone pay taxes on their own assets? How many times should a government be allowed to tax and re-tax the same wages? Whose money is it anyway? Nowadays, the thieves in DC (both Democrats and Republicans) act like it is their money. Just as bad, if not worse, they treat Americans like idiots who could never figure out how to handle their own assets without the assistance of their BIG BROTHER elitists in DC.
The sickest part of this joke is that the politicians know SS and Medicare are already insolvent. But, their media co-horts are silent on the issue. In 10-15 years, everyone will wonder why these problems were not addressed 20 years earlier.
In the meantime, Neal and Brady will be saluted for this bill which allows more people to contribute to a 401k. It sounds great on the surface, doesn’t it? Well, imagine their surprise when they realize that in the future, they will have to pay significantly more in taxes on “deferred income” due to Washington’s debt reliance. Yes, that’s another item these politicians do not mention. The problem is not what they talk about, the problem is what they will never discuss. They only discuss things that make them appear lime problem solvers, when in fact, they are really problem creators.
I like the features about part-time workers being able to participate in retirement plans. Many spouses who care for children miss out on this benefit and society greatly benefits from their sacrifices. I also see many ways that I will benefit from this bill, however, I don’t think it goes far enough.
Public schools do not produce financially savvy graduates and financial habits established at a young age, along with investment opportunities that allow them to capitalize over time would produce better long term results. I’d be impressed if school curriculum included Federally mandated Financial Literacy requirements. I’d be super impressed if it actually provided incentives for high school students and undergraduate students to save for retirement, after all financial habits built early in life become life long habits. Right now full time undergraduate students pursuing a financially responsible education are penalized and do not qualify for the saver’s credit, but they have no problem obtaining government/private loans that are absolutely risk free investments. Guarantee me a risk free 6% return for life and I’m there, sadly those days are long gone forever.
Want to make a real dent in student loan debt, place caps on the amount that can be loaned, eliminate the risk free risk lending environment, and cap the interest rate at one percent over the prime rate. The current environment has only resulted in making the cost of receiving an education obscene and it’s only sure to continuing rising. It never amazes me that educational institutions with billions of dollars in trusts still cost tens of thousands of dollars to attend.
While it would never happen and I know it sounds crazy, but I would love to see a program introduced where the government allows a lump-sum transfer of reduced social security benefits to a 401K or even a Roth IRA of their choosing at age 55, or 60. Looking forward to hearing Jane the Actuary’s take on these ideas.
Does the SECURE legislation have any provision for a brokerage window to allow a contributor to escape the plan sponsors choices? Very often there are better choices for the contributor. Thank you.
Doing away with the stretch IRA is a terrible thing and not mentioned or lightly covered in many published reports. When the stretch IRA was first approved I was surprised that Congress had done a great thing for taxpayers. How sad they are now taking it away. Not surprising just sad.
I agree. And they aren’t just “taking it away” – they are taking the hard earned savings of a parent or grandparent and using it to fund more government programs. The government gives many incentives to one generation to fund IRA’s, and then rewrite the laws to take the family’s savings from the next generation.
With the prevalence of divorce in our country, it is more often the case that the IRA savings is split between the husband and wife, and then their respective IRA’s are left to the children (ie. not a spouse). Congress is speeding ahead with this legislation because they want to take this money before the average Joe catches wind of the taking.
Does the SECURE act enable highly compensated employees to increase their participation? My prior employer’s plan only allowed HCE’s (defined as those making $125K+) to contribute 7% of their income, presumably because the rate of savings was only 5% among those making less than $125K. They changed to a plan that does not require matching during the financial crisis, opting to forego matching during future recessions to lessen the number of layoffs. The company has a large headquarter presence in a city with a very high cost-of-living with thousands of full-time workers across the earning hourly wages that are competitive for the role and industry.
In high cost-of-living areas, a $125K earner is middle-class and needs the pre-tax deferral.Unfortunately, 7% of an employee making $125K is only $8,750. At an employer with a mandatory match, all workers making $125K+ could contribute $19K. I ultimately had to change jobs to an employer with a plan that did not restrict my retirement savings. I liked my former job and the move should not have been necessary.
Will the SECURE Act address this gap in retirement security and make it more feasible for middle-income earners in high cost-of-living areas to save for retirement?
1) Eliminating the stretch feature is not only unfair to account holders, it’s fraudulent. Most of us were encouraged by plan sponsors to max out our 401k, exactly because we’d be able to leave most of our hard earned savings to our heirs and keep it out of governments hands for as long as possible. We detrimentally relied on that promise, so we increased our deductions, made sacrifices, played by the rules so the Govt wouldn’t tax the heck out of our kids. SECURE is effectively an accelerated massive death tax — and what remains after the taxes would no longer be tax sheltered (double whammy). Congress is essentially stealing our personal property. Most Americans don’t even know this is going on.
2) Under SECURE, they’re going to start selling annuities in IRA’s. Annuities are already deferred. It’s redundant to wrap them in another deferred vehicle, IRA’s 401k etc. Sales commissions will be flowing every which way, and most account owners will get slammed with embedded sales charges paid to rickety insurance companies. It’s disgusting.
I wonder if anyone has bothered to calculate the cost to administer this plan? Modest improvements will not improve the lot of those employees who do not take advantage of the employer’s savings plans, and 50% (my guess) do not. The government is not the babysitter for us.