In this episode of Inside the Plan with the 401(k) Brothers, Bill Bush and Andy Bush, advisors at Horizon Financial Group, discuss New Year’s Resolutions plan participants should consider for the year 2020. In addition, they talk about the newly passed and signed SECURE Act, the most significant retirement plan legislation to be enacted in over a decade.
Episode Highlights:
According an article in US News, 80% of New Year resolutions fail by the 2nd week of February! Ouch. Here we offer 7 resolutions you should consider making, when it comes to your company retirement plan account:
- Set up your online account access. This sounds simple, but you’d be surprised at how few people actually do this. We live in the digital age, where you can do just about anything on your phone or computer. So, make the leap and set up your online access.
- Log in to your online account at least 3 times this year. (Spread throughout the year, of course). Check things out, review your balance, see what your return is, and look at your fund options. Opt for electronic delivery of your statements, if you can. The point is, you have access, so use it regularly. And if you log in 3 times or more this year, you’ll be using the tool more than most participants.
- Use your provider’s online calculator 1 time this year. “Am I doing enough”? A common question when it comes to retirement savings. What does the percentage you’re saving now going to mean in the future? Most providers we deal with have online calculators to help you answer those questions. Usually, you can add in other outside funds, including your spouse’s info, as well as Social Security into the calculator to help you figure if you are on track or not. It’s an exercise worth doing once a year.
- Increase your contribution. This also is a way to help you reach what may be another of your resolutions: save more money. Check with your plan administrator to see how often you can change your contribution rate (these vary by plan). At the next opportunity, think about upping your rate by a percent or 2. Over time, it could make a big impact in your account…and your future self will thank you! Your online calculator can help you figure out what the impact might be.
- Learn the maximum you can contribute, and set a goal to reach it. Many folks often aren’t sure of the maximum they can defer to a company retirement plan. For instance, some think they can only put in what the company match is…NOT TRUE. The annual limits are actual dollar amounts, and vary depending on the type of plan you are in. If you try to max-out your contribution each year, remember some of the limits have changed for 2018, so you may need to change your contribution rate. (for 401k, 403b, and most 457 plans the limit is now $19,500…for those 50 and older, you have available catch-up contribution opportunities also.) For more information on the limits, ask your plan administrator.
- Review your asset allocation. Whether you do this online, or with your next quarterly statement, it’s worth taking a look at, at least once a year. There has been solid growth in the stock market over the past year, so is your percentage of equities in your portfolio still consistent with your risk tolerance and time horizon? Worth checking out. You may need to re-balance…or set your account up to automatically rebalance online, if available.
- Review your beneficiary designation. If you’ve had a significant change in your life recently, you may need to update the beneficiary/beneficiaries on your account. Marriage, divorce, death of a spouse, or other events could trigger the need to review this, but sometimes it’s overlooked.
Good luck with those resolutions! If you need any help with your retirement account, give us a call at 225-612-3820.
SECURE ACT PROVISIONS:
Delayed Required Distributions
For participants in 401(k) and other defined-contribution plans, or individual retirement account (IRA) holders, the bill allows retirees to delay taking required minimum distributions (RMDs) until age 72, up from the current age of 70 1/2. RMDs are the minimum amount participants must withdraw from their retirement accounts each year, set by actuarial tables. The change applies only to people who turn 70 1/2 after Dec. 31, 2019.
In a related development, the IRS proposed changes to the RMD rules on Nov. 7, updating the life expectancy tables used in calculating required distributions. The new tables were developed based on projected mortality rates for 2021 and, if finalized, they would reflect longer life expectancy assumptions and, consequently, reduce required distribution amounts.
In-Plan Annuities
To address the 401(k) plan "annuity conundrum," the SECURE Act creates a safe harbor that employers can use when choosing a group annuity to include as an investment within a defined-contribution plan, with new provider-selection rules. For instance, the legislation will protect employers from liability if they select an annuity provider that, among other requirements, for the preceding seven years has:
- Been licensed by the state insurance commissioner to offer guaranteed retirement income contracts.
- Filed audited financial statements in accordance with state laws.
- Maintained reserves that satisfy all the statutory requirements of all states where the annuity provider does business.
The SECURE Act also increases the portability of annuity investments by letting employees who take another job or retire move their annuity to another 401(k) plan or to an IRA without surrender charges and fees.
. The SECURE Act authorizes a solution for companies to include in their plans insured guaranteed lifetime income."
Annual Disclosure of Projected Income
```The SECURE Act will require plan sponsors to annually disclose on 401(k) statements an estimate of the monthly payments participants would receive if their total account balance were used to purchase an annuity for the participant and the participant's surviving spouse. The DOL will devise assumptions 401(k) plans can use to estimate the monthly income workers’ 401(k) balances are likely to generate over their lifetime, and the disclosure must be made on workers’ 401(k) statements a year after regulators finalize those assumptions. The Secretary of Labor is also directed to develop a model disclosure.
Other Defined-Contribution Plan Changes
The SECURE Act will also:
- Require employers to include long-term part-time workers as participants in defined-contribution plans except in the case of collectively bargained plans. Eligible employees will include those who completed at least 500 hours of service each year for three consecutive years.
- Provide penalty-free withdrawals from retirement plans of up to $5,000 within a year of the birth or adoption of a child to cover associated expenses.
- Prohibit the distribution of plan loans through savings plan credit cards so that funds are not easily available for routine or small purchases.
- Permit employers to add a safe harbor feature to their existing 401(k) plans once the year has started if they contribute at least 4 percent of employees' pay instead of the regular 3 percent. This flexibility will help employers to correct failed ADP/ACP or top-heavy tests by shifting to a safe harbor plan and making a 4 percent nonelective contribution to participants.
- Extend the period of time for companies to adopt new plans beyond the end of the year to the due date for filing the company tax return, giving employers additional time to cover their employees with a profit-sharing contribution.
- Convert custodial accounts from terminated 403(b) plans into IRAs.
- Impose a new 10-year distribution maximum for death benefits from IRAs and defined-contribution plans for nonspouse beneficiaries. Currently, spending down from inherited accounts can be stretched over the life of beneficiaries to mitigate taxes. This provision is intended to generate tax revenue and offset the cost of the act's tax credits.
- Eliminate the age limit for traditional IRA contributions. Those who are still working can continue to contribute to a traditional IRA, regardless of their age, instead of eligibility to contribute ending at age 70 1/2.
Resources Mentioned:
