Weekly Update – New Retirement Plan/IRA Legislation
Earlier this week, the Ways and Means house committee passed the SECURE Act. This provisions of the bill would be the most signficant to retirement plans since the Pension Protection Act of 2006.
The Senate is creating their own version with similar concepts that could find its way to the president’s desk by the end of this year. Here are the significant provisions of this legislation:
My Analysis: In my opinion, this seems to be the result of the lobbying efforts of the insurance industry. Looking carefully at the wording used by the bill’s sponsors, you will frequently see the phrase Retirement “Income” Crisis, not a Savings crisis, but an Income crisis.
The main selling point of this legislation would allow you as an employee to turn your 401k savings into a lifetime annuity inside of your 401k plan. You can already to that if you simply roll out your 401k and buy an lifetime annuity. In fact, you can shop which annuity company gives you the most competitive rate, which you will not be able to do inside of a 401k plan.
To pay for this bill, they are trying to eliminate the Inherited IRA, one of the greatest planning tools we have as a way to pass retirement savings to children in a tax efficient manner.
In my experience, instead of a $500 tax credit, what the 401k industry needs is for plans to become easier and more simple to operate, this legislation does the exact opposite. I would guess that it will lead to more annuity companies in the 401k marketplace, an increase in fees, an increase in administrative burdens, and in confusion.
What does this mean for you? If this passes, Roth conversions in retirement have to be analyzed. I’ll be doing this analysis for existing clients based on the final rules, and what they ultimately decide to do with the Inherited IRA.
I hope this information was helpful, as always please do not hesitate to contact the office with any questions. Have a great weekend!