May 25, 2019 — The Democratic lead House of Representatives passed a bill this week, the Secure Act of 2019, that would make major changes to 401(k) plans. If it goes into law those changes could have a very positive effect on retirees and people who hope to retire someday. Since neither the Senate nor Pres. Trump seem to have any major objections, the bill seems to have a very good chance of becoming a reality.
The law has come into being as a reaction to a number of factors including a recognition of the growing importance of 401(k) plans, as well as the increasing longevity of Americans dependent on those plans for their financial security. Here are some of the many changes in the Secure Act of 2019, which passed by a whopping 417-3 margin:
- Required Minimum Distributions (RMDs) not required until age 72 (currently required at age 70 and 1/2)
- Granting companies with 401k plans permission to offer annuities as an investment option
- Employers must disclose on 401(k) statements the amount of sustainable monthly income the employee’s balance would support
- Part time workers would be allowed to participate in 401(k) plans
- Unaffiliated companies could band together to offer 401(k) plans
To help pay for the lost tax revenue that might come from these changes, the bill would change the tax treatment for people who inherit 401(k)s. If it goes into law, the inheritors would have to cash out the plan within 10 years and pay appropriate taxes. Surviving spouses and minor children are exempt.
What this might mean for you
As we mentioned earlier, this bill which addresses needed changes to retirement plans and our increased lifespans, seems to have very rare bipartisan support. If you are not retired yet, the biggest change might be in having the option to put some of your tax-deferred retirement assets into an annuity at a younger age. If you are retired and your assets are still in the company’s 401(k) program you also might have the annuity option, if the company provides one. Many people like the idea of annuities because they offer the option of a guaranteed payout as opposed to the risks in the stock and bond markets.
Whether you are retired or not you would be able to delay taking required distributions from your plan for an extra year and a half (70 1/2 to 72). That would let your assets accumulate more tax deferred value longer, as well as delaying taxes on your distributions.
Comments: If your 401(k) plan offered an annuity , which guarantees future income, would you invest in it? Also, if an RMD was not required until age 72, would you wait that long before taking out money from your plan? Please let us know in the Comments section below.