After they stop working people soon learn they must pay taxes: Social Security and Medicare they thought they were paying for with every paycheck all their working life. Along with these revelations comes the realization that Social Security isn’t enough to live on. That’s were 401Ks and IRAs come in handy. But not everyone was lucky enough to have had the opportunity to participate in such plans. Most people work for small businesses and until lately small businesses were prohibited from offering their employees such opportunities to save for the future.
Then came Trump.
While President Trump leads the way in trying to make life better for American workers CNBC’s Jim Cramer noted, “Trillions of dollars in wealth has been created through retirement accounts” and “Democratic presidential candidates do not seem particularly concerned about Americans’ retirement savings accounts.” Clara Del Villar of Newsmax puts it this way, “The Democratic debates have failed to raise senior issues to any prominence.”
The Corporations Once Known as the Mainstream Media consistently portray seniors as self-serving grifters who are not concerned about much more than their Social Security checks. That same media presents those checks as some sort of welfare payment. Seniors have paid through forced investment their entire working life for those social security checks. It is in no way their fault that the black hole of federal spending turned social security into a Ponzi scheme.
With little fanfare in January 2020, President Trump signed into law the new SECURE ACT (Setting Every Community Up for Retirement Enhancement). This new law offers some of the most important and useful tools for retirement in years.
For one thing, small business employers who were not allowed to provide 401Ks to their employees can now offer them participation through multiple employer plans. This is an example of how a slight change in regulations in one place can have a massive impact on the whole economy as this one change has the potential to add as much as one trillion dollars to the market over the next five years.
Here are some of the main provisions in the SECURE act that have the ability to impact your future.
1. The Minimum Distribution age for IRAs and 401Ks has been increased. You no longer must face mandatory withdrawal of your funds at age 70 1/2. You can wait until 72. That’s more time to grow your savings by staying invested in tax-advantaged vehicles.
2. Retirees or those who continue work into their 60s and early 70s can now contribute to their IRA until age 72. People who are lacking in retirement savings have additional funding flexibility for a few more years.
3. You now have an additional opportunity to execute a Roth IRA conversion. Unlike traditional IRAs, Roth IRAs are tax-free at withdrawal, which is a sensible plan if one expects higher tax rates in the future.
4. Employees will soon have the option to select guaranteed lifetime income products or annuities in their retirement plans. Employers will be exempt from lawsuits (called safe harbor) if the insurer does not pay future claims.
5. The SECURE Act eliminated the “stretch” provision for IRA or 401K beneficiaries. Previously, a traditional IRA beneficiary had a lifetime to “stretch” the tax-advantaged benefits of a bequeathed fund. Now that time frame to distribute the entire inherited retirement account has been reduced to 10 years after the death of the owner. Special exemptions still exist for the surviving spouse and minor children.
Other provisions include:
1. Provide a maximum tax credit of $500 per year to employers who create a 401(k) or SIMPLE IRA plan with automatic enrollment.
2. Enable businesses to sign up part-time employees who work either 1,000 hours throughout the year or have three consecutive years with 500 hours of service.
3. Encourage plan sponsors to include annuities as an option in workplace plans by reducing their liability if the insurer cannot meet its financial obligations.
4. Permit penalty-free withdrawals of $5,000 from 401(k) accounts to defray the costs of having or adopting a child.
In America today people age 65 and older are twice as likely to be working compared with 1985. According to recently released data from the Census Bureau and Bureau of Labor Statistics (BLS), the percentage of retirement-age Americans in the labor force has doubled since 1985, from its all-time low of 10 percent in January of that year to 20 percent in February 2019.
Americans continue to work longer and harder than ever before. And President Trump continues to work to help them provide for their own future. Not just with Social Security, which is meant to be supplemental at best, but with expanded individualized and privatized investment opportunities.