The government spending legislation that passed in the Senate last week tucks in a series of changes that will affect people saving for retirement or those already withdrawing money from their accounts.
The legislation clears the way for employers to add annuities to their menu of options within their 401(k) retirement plans, allows workers to contribute to an individual retirement account even after the age of 70½, and enables more part-time workers to participate in retirement plans.
"With Americans delaying retirement and increasingly working part time, these changes will allow workers to continue to save," said Sen. Ron Wyden, D-Ore., the ranking member of the Finance Committee. "While we must do more to ensure financial security for older Americans, passage of this bill is an important step."
The legislation, signed into law by President Donald Trump as part of the $1.4 trillion spending deal to prevent a government shutdown, also changes the age at which individuals are required to begin taking withdrawals from their IRAs to 72, up from 70½.
One significant change was the easing of rules regarding retirement plans and annuities, which, in their simplest form, enable workers to convert their savings into guaranteed income streams.
Many employers have long been reluctant to include annuities in their offerings because they feared being sued if an insurance provider could not make the guaranteed payments -- something that could happen decades after an employee has left an organization. The new law eliminates some of the liability for employers.
But consumer advocates and other financial experts said they were concerned that undesirable annuities -- often costly and complex ones -- could end up among savers' options, particularly at smaller employers that get less sophisticated advice or don't look beyond a sales pitch.
"I'm encouraged by the fact that plans could give people the chance for guaranteed income over the course of their lifetime," said Jeffrey Levine, director of financial planning at BluePrint Wealth Alliance, a financial advisory firm in Garden City, N.Y. "But I am nervous about the wrong types of annuities getting in there -- there is potential for abuse. It is kind of a double-edged sword."
The legislation also allows small businesses to band together to create retirement plans for their workers, which supporters say would give them access to investments and administrative services at a lower cost. And the law allows people who put aside money for educational costs in a 529 college savings plan to use up to $10,000 in leftover money in those accounts to pay back student loans -- as well as the debt of the beneficiaries' siblings.
The legislation, called the Setting Every Community Up for Retirement Enhancement Act of 2019, makes more than two dozen changes, including one that might be less welcome for wealthier retirees -- or at least some of their heirs.
The law requires some people who inherit retirement accounts like 401(k)s and IRAs to empty them -- and pay taxes -- within 10 years, instead of being able to stretch withdrawals over their lifetime. Certain beneficiaries are exempt, though, including spouses and children who are minors. That provision will help pay for the law's various changes.
Business on 12/24/2019