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SECURE ACT update musings

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  • #16
    I'm very active in politics, and my Congressman recently told me that he doesn't think it will pass now because of Cruz.  This is contrary to what a Senator advised before Cruz held it up.

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    • #17
      frankly I think senators know whether it'll pass the senate better than house members. regardless, while it's possible cruz will hold it up indefinitely, if trump wants it passed, cruz will cave. Cruz, for all his shenanigans, has caved many times before. I'd be more worried if it was Paul who was holding it up

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      • #18




        @larry, one way our tpa suggested to increase contributions is to start at a low percentage contribution via auto enrollment and then slowly ramp up to the target contribution, say start at 3% and then up by 1% every other pay period
        Click to expand...


        That would probably work, but it does require a lot of "touches." We are thinking about a slightly higher requirement to get the full match so that it equates to >15%. Perhaps even increase our match as well.

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        • #19


          We are thinking about a slightly higher requirement to get the full match so that it equates to >15%. Perhaps even increase our match as well.
          Click to expand...


          Will you run into trouble with high income employees?

           

          I cannot contribute 15% of my income because it is over the limit for example.

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          • #20




            Yes, auto enrollment is a good idea generally. Data shows it massively increases retirement plan participation, mainly because of apathy. We considered it, but we had pretty high participation anyways and have provided a good advisor available to employees at no cost to them. If we would have done it, we would have auto enrolled people in their age based vanguard TDF.
            Click to expand...


            We do in fact auto enroll in to Vanguard Target Retirement Funds. Employees can opt out, but as a practical matter very few do. They also have complete freedom to change their investments within the 403b. Well, within the funds we offer, but they are very wide range of Vanguard institutional share index funds.

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            • #21





              We are thinking about a slightly higher requirement to get the full match so that it equates to >15%. Perhaps even increase our match as well. 
              Click to expand…


              Will you run into trouble with high income employees?

               

              I cannot contribute 15% of my income because it is over the limit for example.
              Click to expand...


              No. Well, its possible, but does not come up that often because of our salary ranges. A few thoughts. Our concern for the 15% contribution rate is not really targeted at the highest end. It is the well paid professional engineer or scientist (sort of mid-six figures). Note, the 15% for the purpose of Vanguard's calculation includes both employer and employee contributions. However, while our 403b employer contributions are capped at the IRS limit, we benefit from having the employee contributions count separately in a 401a. So, in effect, we get two $56K limits. For most there is room for some mega backdoor Roth after tax contributions. Also, many if not all of the highest paid employees are eligible for a self-contribution 457b.

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              • #22
                “It changes RMDs a tiny bit, who cares.”
                Tiny? The problem I have with this is “punishing” someone for good behavioral finance actions. Many had 401ks and simply cashed out when changing employers (hey, an $3k penalty on $30k? Bad behaviors resulted in low retirement balances. Philosophically, targeting “good financial behavior” to increase taxes is unethical.

                Government policies leveling 401k is great. It reduces the administrative costs for smaller employers.

                Unintended consequences? Bad financial behaviors. People cashing out annuities or stocks and still don’t have retirement savings. Early termination fees and the government gets those taxes sooner due to lump sum distributions. Actually, it’s more changing rules in place for 40-50 yrs of prudent retirement plans and targeting a specific innocent party for the money. Nebulous results with the insurance industry making money.

                Reducing or eliminating the stretch option will in no way encourage good retirement savings behavior. Of course, who cares?
                The great thing is, its painless. Taxes won’t be paid by the deceased. And dead people don’t vote! Just kidding, we all have seen those stories. Maybe a tax credit for employers matching higher percentages and employees too. Tax policy should encourage financial behavior, not penalize good behaviors. Penalties can be used to discourage bad behaviors, like taking early distributions.

                Just the philosophical approach move than the dollars I personally will be gone when the lumps are withdrawn.

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                • #23
                  Unfortunately it looks like the SECURE Act is one step closer to becoming a reality:

                  https://www.forbes.com/sites/ashleae.../#660990bf5578

                  The entire bill is essentially included in the spending bill so if it passes as expected the stretch provision for inherited IRAs is eliminated forcing distributions within 10 years. So nice of the government to penalize those who do the right thing and actually save for their retirement.

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                  • #24
                    Of course it's attached to a spending bill. This is why I dislike government. Penalizing good savers. And passing it under the cover of another bill.
                    $1 saved = >$1 earned. ✓

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                    • #25
                      Wonderful! This will fix a lot of problems.
                      • Now an annuity can be the “new pension” in 401k’s.
                      • Existing IRA’s are on track to be depleted systematically.
                      • Retirement savings enters an era to deplete retirement savings, rather than promote savings.

                      Head scratching solutions:
                      At my funeral, both of my kids will comfort their mother and offer comfort: Mom will you marry me?
                      We have seen social norms change drastically, why not one more? Brings new meaning to sibling rivalry and “Mom always liked you best”. Geezzz.

                      Don’t think for a minute that “annuities” with survivor and death benefits will be enhancements will be improved so “whole life insurance” will be sold in 401k’s as a good investment.
                      The safe haven translates into allowing insurance companies to turn 401k’s into sales tools. What could go wrong?

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                      • #26
                        I like the age 72 for RMDs. Lots of calculators will need updating.

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                        • #27
                          I too am happy with the raised age for RMDs. As for losing the stretch benefit, I agree it sucks but let's remember. All we can do as parents is pass on our financial advice to our kids. They may or may not take it. And if they take it and apply it well, you have to hope they imparted those values on their kids (your grandchildren). It takes just one generation to wipe out all of the hard work of the past generations. Very very few people unfortunately were getting the stretch benefits anyway, because very few people save enough. Further, it might be helpful to think this way: with the stretch benefits setting up basically a lifetime of gifts to your heirs, they may not be incentivized to work and contribute to society for any period of time. A large enough IRA on death could ruin the next generation that way. This is what I tell myself to realize losing the stretch isn't the end of the world

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                          • #28
                            Originally posted by JBME View Post
                            All we can do as parents is pass on our financial advice to our kids. A large enough IRA on death could ruin the next generation that way. This is what I tell myself to realize losing the stretch isn't the end of the world
                            I have zero problem paying taxes. I have a problem with changing the rules after the game is over. Touchdown 6 points, extra point 1, run or pass it over 2 points, field goal 3. Opps, upon further review,
                            lets make crossing the 20 worth five. You lose.

                            The point is not the amount of an inheritance that may be left. $2mm cash is just as much a behavioral problem as a $3mm IRA. You can't redo 30 years. Changing the tax policy that was intended to encourage prudent financial decisions are serious governmental issues. This tax policy change is punitive to a segment of the population. Bait and switch to benefit insurance companies.
                            They could have just as easily moved RMD's up to 68, but they used it as a sugar fix, short term solutions for a sugar fix to redistribute money to others. Funded by the insurance companies.
                            Not good tax policies for retirees now or in the future. Ironically, at the same time., boost up the estate limits virtually double. Opps, chose the wrong vehicle. Purely politics scrambling for dollars for whatever needs to be bought.

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                            • #29
                              Originally posted by Tim View Post
                              I have zero problem paying taxes. I have a problem with changing the rules after the game is over. Touchdown 6 points, extra point 1, run or pass it over 2 points, field goal 3. Opps, upon further review,
                              lets make crossing the 20 worth five. You lose.

                              The point is not the amount of an inheritance that may be left. $2mm cash is just as much a behavioral problem as a $3mm IRA. You can't redo 30 years. Changing the tax policy that was intended to encourage prudent financial decisions are serious governmental issues. This tax policy change is punitive to a segment of the population. Bait and switch to benefit insurance companies.
                              They could have just as easily moved RMD's up to 68, but they used it as a sugar fix, short term solutions for a sugar fix to redistribute money to others. Funded by the insurance companies.
                              Not good tax policies for retirees now or in the future. Ironically, at the same time., boost up the estate limits virtually double. Opps, chose the wrong vehicle. Purely politics scrambling for dollars for whatever needs to be bought.
                              I agree it is a bit of a bait and switch. It would not likely effect my life too much but I can see why someone would be annoyed if they were a super saver and just got hammered with taxes because of it. Big changes like this should have some grandfathering. If I have the next 30 years to learn the new rules I can accept that but if I was on the eve of retirement I would be pissed.

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                              • #30
                                Since it’s a done deal, all we can do now is complain so I will. IRAs were created in the 70s as a savings vehicle for those without retirement plans at work. The stretch was necessary to incentivize participation. If you lived long and exhausted it fine, but if you died early your savings could kick your heirs into a higher tax bracket negating any prior savings. Might as well just use a taxable account. Removing the stretch feels like a violation of trust, encourage people to use it then take away the incentive after the fact. Unfortunately we should be used to this, SS was never taxable until Uncle Sam decided he wanted more money so now it is. Besides benefiting the insurance industry, estate planning lawyers will also see a nice increase in business. Many plans that use conduit trusts to funnel IRA assets to the appropriate heirs while maintaining their RMD and providing asset protection will need revisions to conform to the new rules. I was already planning on significant Roth conversions in my retirement/preRMD phase of life so this definitely increases the benefit and urgency to do so. Now my fear is that at some point in the future Roth accounts will be targeted. It’s Sutton’s Law, Uncle Sam just can’t help himself.

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