Big Changes Coming to 401(k)s, IRAsSubmitted by Financial Planning Solutions, LLC on May 30th, 2019
On May 23, 2019 the US House passed a bill that would greatly change 401(k)s and IRAs. Major tenants of the bill have been discussed for years but now it is likely that the Senate will take up the bill and the President is expected to sign a version of it.
With most workers not saving enough for retirement, this bill would help encourage participation by adding several attractive features.
Here are the major highlights of the proposed retirement plans bill:
Lifetime income options in 401(k)s. Annuities may become more common in these plans. With most retirees seeking to replace their paychecks at retirement, annuities can provide a solid income stream to help pay required bills for life.
More years to contribute to an IRA. The bill would repeal the age cap on contributing to an IRA. Right now, if you are still working at age 70½ or older, you can’t put money into an IRA. The change will allow you to continue to save for retirement.
Deferral of RMDs until age 72. Currently, once you reach age 70½ you must start taking Required Minimum Distributions (RMDs), whether you need the money or not. If you’re a good retirement saver and investor with your 401(k) and IRAs, you might have to make a large RMD which is completely taxable. Having a few more years could allow your savings to grow longer on a tax-deferred basis and avoid the additional taxable income that comes with RMDs.
Part-time employees allowed into 401(k)s. The bill allows long-time employees working more than 500 hours a year to participate in the plan. Right now employees must work at least 1,000 hours before they can become eligible.
New parents. If you are a new parent, you would be able to take distributions from 401(k)s and IRAs up to $5,000 penalty-free. This option would be provided within a year of the birth or adoption of a child.
Stretch IRAs would go away. If you inherit an IRA, you would no longer be able to “stretch” distributions over your lifetime. This has been helpful to beneficiaries who have many years or decades until retirement. Under the proposed law, you would be required to take withdrawals over a 10-year period after the owner’s death. Surviving spouses and minor children would be exempt from this requirement.
Student loan relief from 529s. Another provision is that you would be able to withdraw up to $10,000 from a 529 plan to repay certain student loans.
Keep in mind that this House bill still needs to make its way through the Senate and be signed by the President, but the outlook looks good for passage. We’ll keep you posted.
Do you have questions? Give us a call. We’re here to help.
Lyman H. Jackson
Financial Planning Solutions, LLC (FPS) is a Registered Investment Advisor. FPS provides this blog for informational and educational purposes only. Nothing in this blog should be considered investment, tax, or legal advice. FPS only renders personalized advice to each client after entering into an advisory relationship. Information herein includes opinions and forward-looking statements that may not come to pass. Information is derived from sources believed to be reliable. Information is at a point in time and subject to change without notice. Such information may not be independently verified by FPS. Please see important disclosures link at the bottom of this page.