Let’s take a closer look at the SECURE Act and how it could impact your retirement savings strategy.
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According to GoBankingRanks, 64% of Americans expect to retire with less than $10,000 in their retirement savings accounts and 48% were not concerned about the size of their retirement savings. About 46% of respondents said that they use a savings account as their primary method to save for retirement rather than a 401(k) or another investment account.
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The bill’s key provisions are designed to:
The bill also removes the so-called ‘stretch IRA,’ which enables non-spouses inheriting retirement accounts to stretch out disbursements over their lifetimes. The new rules will require a full payout within 10 years for heirs of account holders who die starting in 2020.
While the new bill encourages annuities, most advisors recommend against them due to their high fees and the risk that ‘guaranteed’ lifetime income could stop if the issuer (i.e., insurance company) goes bankrupt. The bill’s new safe harbor provisions prevent annuity holders from suing retirement plans in the event that an annuity issuer fails to make payments, which could increase these risks for the annuity holders.
The ability to use 529 educational savings accounts to repay student debt could provide some people with an attractive way to reduce their debt, improve cash flow, and ultimately save more for retirement over the long term. That said, financial advisors don’t always recommend withdrawing tax-advantaged savings accounts to repay debt.
Finally, the elimination of the ‘stretch IRA’ means that IRAs may no longer be the best way to pass wealth down to younger generations. Instead, life insurance could become the most tax-efficient asset to pass non-spousal beneficiaries. The best estate planning option is highly dependent on each individual’s and/or family’s unique circumstances.
For more information and specific advice, consult with a financial advisor to review your unique situation and decide on the best options to reach your financial goals.
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