“A little less conversation, a little more action, please.”
That’s a line from one of Elvis’s perkier Vegas songs, and I have a fantasy of belting it out from the Congressional gallery to a joint session of the lethargic do-littles we call a national legislature.
Don’t just sit there, demanding points of parliamentary procedure – write some laws! Help a country out, would you? I do get worked up.
The philosopher Schopenhauer wrote that inaction is a hallmark of a truly great novel: external activity distracts from the characters’ inner lives and spirits – the interesting stuff. Legislative bodies should be judged in an exactly contrary manner: the more they act – pass good laws – and the less they blather on their misguided ideological principles, the better for us.
They manage to do right, sporadically. Take the SECURE Act of 2019, passed in a time of bipartisan rancor that made, I don’t know, North and South Korea look like a passionate young couple entwined on a bench in cool moonlight. Still and all, Congress got it done. Americans needed help preparing for retirement – everyone was calling it a crisis – and even Congress knew it was time to act.
SECURE 1.0 brought wanted reforms: small business owners now find it easier to set up cheap and efficient retirement plans. Long-term, part-time workers are eligible to participate in those plans. Required minimum distributions (RMDs) can be taken at age 72 (70½ earlier), allowing more time to build up retirement account balances. The maximum age provision for contributing to traditional IRAs was repealed, too.
Plenty of other goodies were included in the package. A few uglies, as well: the venerable Stretch IRA strategy was squelched, and if you inherit an IRA, the distributions must now be taken within 10 years. Yet the result overall was positive: the law helped average Americans prepare better for retirement. Congress, I thank you.
The best part of the story: Congress got a taste for success. Our reps spun up SECURE Act 2.0, or more properly, H.R. 2954, the Securing a Strong Retirement Act; the parallel Senate bill is the Retirement Security & Savings Act. A vote on the popular measure is expected by year end, or possibly early 2022 – the latter’s my guess; Congressional wheels seem a mite sticky just now. Still, we can bet on passage.
The details may change between now and the clapping, but let’s take a rundown, so we’ll be something like ready.
Many citizens are burdened with student loans and cannot afford to contribute to 401(k), 403(b), or IRA plans. SECURE 2.0 would treat their qualified student loan payments as plan contributions, making them eligible for matching contributions from employers. Strapped younger workers should soon be able to pay down their loan debt and start saving for retirement. I call this a nice win.
I was chatting with a friend this week, who’s been ‘just about to start’ an IRA for about 15 years now – bet you know someone like her. I chalk this up as my own failure, but then, what can I do? She won’t listen to my advice. Mind you, I don’t always, either.
Congress has heard this old tale, too, so under 2.0, new employees will be automatically enrolled at a 3% contribution rate in their workplace retirement plan. The autopay will rise by 1% each year, a neat little legislative trick, to a 10% limit. Some might not like it (they can opt out), but once the benefits start to accrue, this good idea should become clear, and welcome.
People over age 50 can already make catch-up contributions to IRAs and 401(k) plans – that is, they can top-up their accounts beyond the standard limits. This year, eligible workers can contribute an extra $1,000 to an IRA (standard contribution limit: $6,000), and 401(k) participants can add a sweet $6,500 to the $19,500 threshold. That’s the situation today.
SECURE 2.0 would allow people aged 62-64 a 401(k) catch-up contribution of $10,000 per year. I expect to take advantage of this myself. All those financial crises have left me, well… my advisor calls me Amtrak; always behind schedule. SIMPLE IRA catchup payments will climb to $5,000 per annum. I hear the opportunity train a comin’ and I’m ready for a ride on the Reading.
The IRS sets the RMD age limits for retirement accounts. Some people need those payouts immediately, I’m sure; but if one can wait, a few extra years can mean strong value appreciation for a retirement account. The RMD threshold is now age 72; under SECURE 2.0, it would rise to 73 on January 1, 2022; 74 on New Year’s Day 2029; and 75 on day 1, 2032. I think this pace is too slow, but it gets us out of the gate. Congress has now shown its ability to tweak, so pressure can be brought on them later. Not too bad a result.
One more RMD issue: the whole shebang is confusing, and people sometimes miss taking them through no fault of their own beyond confusion or miscalculation.
That’s rough, because there’s a 50% excise tax on funds withdrawn in an improper timeframe (Draconian cruelty to elders, I feel; indeed, I don’t think anyone over 65 should pay taxes, let alone fees, but no one’s asked me). The penalty under 2.0 would max at 25%, with only a 10% hit if you catch and correct the mistake in time. I’ve parenthetically expressed my views, but in the cruel world of taxation, I guess thumbscrews are better than the skull-crunching variety.
SECURE Act 2.0: I like what I see and hope for more progress – a 3.0 and beyond. Is the puffing little engine of Congress picking up steam? Is I-think-I-can turning into now-we-know-how? The success of the trend to full-steam-ahead depends on how hard we press them, by joining pro-retiree interest groups, sending regular emails to representatives, and ballot-box stuffing (only one per customer, please). I think democracy frightens some officials, and that’s good, because sometimes, we scare them straight.