“Vanguard supports many components of the Act,” Mr. Golden said. “We enthusiastically support provisions that help investors achieve retirement security, including improved access to currently underserved employees, streamlined plan administration that can reduce costs for investors, and incentives that encourage investors to save more.”

Mr. Golden cited opportunities to improve savings levels within plans as particularly significant.

Retirement savings incentives

Previous law required that most individuals begin to take annual required minimum distributions from their retirement accounts when they reach the age of 70½. The SECURE Act delays this requirement to age 72, allowing investors to save longer before they have to start withdrawing assets. (Individuals that are still working beyond age 72 will still be permitted to delay taking required minimum distributions from most employer sponsored retirement plans until after they retire.)

The SECURE Act also repeals the maximum age for traditional IRA contributions. Previously, the age limit was 70½ years old. Repealing this limit allows workers to save longer for retirement even after withdrawals begin.

The legislation allows employers to raise the cap on automatic deferral rate increases from 10% to 15% for employees who are auto-enrolled in their retirement plans. “Automatic escalation can substantially increase retirement savings rates by encouraging investors to save at higher levels,” Mr. Golden said. “We expect the increase in the cap to allow more investors to save significantly more over time and be better prepared when they retire.”

Other provisions of interest to investors

New and increased tax incentives were introduced to encourage small businesses to begin providing plans and to include auto-enrollment. Vanguard believes this is important because the coverage gap is greatest in the small business market. The law further seeks to improve access to retirement savings plans by allowing open multiple-employer plans in which unrelated employers can join together through a pooled plan provider administered by a third party. These arrangements allow firms to enjoy economies of scale that could reduce compliance costs and burdens while increasing their negotiating power with providers.

Other important provisions include changes to 529 college savings plans and the effective elimination of “stretch” distributions from IRAs and employer-sponsored retirement plans.

To make up for lost tax revenue, the SECURE Act requires most individuals who inherit an IRA to withdraw the money and pay any taxes due within ten years of the account owner’s death. Some types of beneficiaries, including surviving spouses, minor children, and certain others are still excluded from the new ten-year payout rule. Previously most heirs could spend down or “stretch” inherited IRA accounts over their lifetime.

Under the SECURE Act, 529 plans can now be used to pay for apprenticeship program expenses, and as much as $10,000 over a person’s lifetime can be used for student loan payments.

Despite reservations, Mr. Golden said that the SECURE Act features much to celebrate, and he applauds Congress for focusing on retirement savings issues.

“While this law is far from perfect and we hope it is merely a starting point for additional retirement savings legislation, we’re excited about the provisions that improve savings opportunities, such as increasing the age of required retirement account distributions, raising the cap on automatic escalation, improving tax credits for small businesses offering plans, expanding multiple employer plans, and streamlining the rules for safe harbor plans,” he said. “We’re eager to work with Congress on bold bipartisan efforts to build upon the momentum of those provisions.”


When some key provisions of the SECURE Act would go into effect

Effective immediately

·       Changes to 529 plans

·       Annuity safe harbor

Effective in 2020

·       Increased mandatory RMD age

·       Contributions to traditional IRAs after age 70½

·       Increased limit on automatic escalation

·       Increases in tax credits for small employers

·       Portability of lifetime income investments

·       Inherited IRA provision

Effective later

·       Lifetime income disclosure mandate will be effective 12 months after the Department of Labor finalizes the rules

Source: Vanguard, 2019.



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