Karl Eggerss was on CBS this morning discussing the SECURE Act and how that bill will require more planning for individuals.
Sharon Ko: A bill sitting in the Senate could soon become the most significant retirement reform in more than a decade. The Setting Every Community Up for Retirement Enhancement act has several benefits. Here’s the top three.
Sharon Ko: So the first benefit is going to help part time workers.
Karl Eggerss: Yeah. In this country everybody’s living longer, not everybody, but most people on average are living longer. That puts a bigger strain on their savings and therefore a lot of folks are working part time, so they’re kind of phasing into retirement. They’re going from full time to part time and then they’re going into full time retirement. If they’re working part time, a lot of employers can exclude them from their 401k plan. Under the SECURE Act, that would not be the case. So that’s going to be a benefit for those part time workers that could actually participate in a 401K plan at their company.
Sharon Ko: Second benefit, IRAs.
Karl Eggerss: Yeah, IRAs. Right now, if you have an individual retirement account, which is an IRA. At 70 and a half, you have to start taking out a portion of your balance per year based on your life expectancy, which are some national tables. When you do that, of course you pay taxes to the IRS because the IRS has never been given their tax money. You’ve never paid taxes on that money.
Karl Eggerss: Currently, the rules at age 70 and a half, that has been the case for a number of years. The SECURE Act would push it to age 72, so it allows you another year and a half for that money to grow. So that’s a good thing.
Sharon Ko: And the third benefit is the inherited IRAs.
Karl Eggerss: Yeah. So if you have a, a classic example would be a parent that leaves you their IRA. Under the current rules, you can take it out over your lifetime. You have to take it out over your lifetime. Again, life expectancy, actuarial tables, and when you take it out, you have to take out a portion of it each year based on your life expectancy.
Karl Eggerss: Under the SECURE Act, this would be shrunk down to 10 years. So you would have to take all of it out over a 10 year period. That’s one of the negatives, but that’s a way that the SECURE Act is getting funded. That’s how it’s getting paid for because remember, if you take it out over a 10 year period as opposed to your lifetime, the IRS gets more tax money quicker.
Sharon Ko: Really overall, the SECURE Act, do you think it’s just to fix the flawed retirement system?
Karl Eggerss: We have a problem in this country, not enough people have adequate savings to support their lifestyle. Again, people are living longer. We’re healthier generally speaking, technologies allowing people to live longer and we have a shortage of savings. So they’re trying to attempt to help people with their savings. However, the Senate, some people in the Senate, and the reason it’s kind of stuck there right now is that they believe that there’s too many negatives to this SECURE Act. So it passed in the house, now it’s waiting for the Senate. So we could see some modifications ultimately until this gets done. But it passed the house pretty overwhelming. I think only three were against it, but the Senate has some big issues with it because they feel like, yes, it’s helping some folks out, but it’s hurting some others and trying to help everybody and that’s hard to do.
Sharon Ko: Really a bright side of it, bipartisan support with this.
Karl Eggerss: Yeah, there is support for doing something and so ultimately something will get done. But usually with these, they go in one place and they get talked about and debated, they get modified, something gets tossed out, something gets added, there’s some negotiation, there’s a lot of lobbying, et cetera. And then ultimately you get something that generally speaking, not everybody’s happy with, but if they can help folks save for retirement more, that’s a good thing.
Sharon Ko: Thank you Karl Eggerss for helping us get money smart. The SECURE Act is expected to be signed into law by the end of this year. It would take effect 2020.