On Thursday, May 23rd, the House passed legislation to help workers at small businesses save for retirement, otherwise known as the SECURE Act (Setting Every Community Up for Retirement Enhancement). Now the bill moves to the Senate for consideration, and eventually to the President. If the changes go through, they will mark the most significant changes to retirement plans since 2006.

What does the bill address?

Check out our recent blog, Congress Proposes Retirement Plan Improvements through SECURE Act. The bill aims to address the looming retirement crisis. According to a recent survey, only 36% of non-retired adults believe they are on track for a comfortable retirement. The survey also reveals that 25% of Americans have no retirement savings or pension.

The SECURE Act intends to make it easier and cheaper for small businesses to offer 401(k) plans, so that more people have access to a retirement savings vehicle.

What’s included in the bill?

Some of the provisions included in the SECURE Act:

• Repeals the maximum age for traditional Individual Retirement Account (IRA) contributions, which is currently 70 ½
• Raises the required minimum distribution (RMD) age for retirement accounts from 70 ½ to 72
• Allows long term part-time workers to participate in 401(k) plans
• Allows more annuities to be offered in 401(k) plans
• “New baby savings”- Allows parents to withdraw up to $5,000 from retirement accounts penalty-free within a year of birth or adoption for qualified expenses
• Allows parents to withdraw up to $10,000 from 529 plans to repay student loans
• Fixes a glitch in December’s Tax Cuts and Jobs Act (TCJA) that imposed the “kiddie” tax on Gold Star families (those who have lost a loved one in the military) and children of deceased service members

Benefits of the SECURE Act

1. Tax benefits- 401(k) contributions are made pre-tax, meaning the more you put in, the more you reduce your taxable income.
2. Automatic contributions- Since the money is automatically withdrawn from your paycheck, you avoid the temptation to spend it. Overtime, your money will grow and compound until you are able to start withdrawing at age 59 ½ (remember early withdrawals are subject to a penalty).
3. Potential for 401(k) match- Many employers will match whatever contribution you put towards your 401(k), subject to certain limitations.

Making retirement more accessible is a welcomed change that will help more Americans achieve financial security for their future. Stay tuned for how this bill fares in the Senate. We’ll keep you updated.
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