Mind on Money: Retirement savings law offers planning opportunities | F. Marc Ruiz: Your Mind on Money

August 1, 2021

When it comes to the federal government it seems like it's all bad news all the time. The 24-hour news channels have obviously discovered it's more effective to capture our attention through outrage, so endless propaganda about in-fighting and controversial but often meaningless disagreements rules the airwaves.

Once in a while, however, Congress deserves kudos for passing laws that actually improve people’s lives, and I think just such a piece of legislation is working its way through the chambers right now. The law is called the Securing a Strong Retirement Act, but we in the financial industry are just calling it Secure Act 2.0, and some of its provision should be able to be used to improve planning outcomes for many Americans. Let’s go over a few.

The First Secure Act, passed in 2019, raised the age retirees are required to begin taking minimum distributions (RMDs) from their tax deferred retirement accounts from a confusing age 70 ½ to 72. This was a welcome change in my practice, as it provided another level of tax control to our clients. Provisions in the Secure Act 2.0 will raise the RMD age even further, to 73 immediately and then to 75 over a decade. The later the better, in my opinion, as RMDs can have unintended consequences with tax rates and Medicare premiums, so an additional couple years of tax deferral will be very welcome.

Another welcome RMD change in the Secure Act 2.0 proposal reduces the tax penalty associated with RMD mistakes from a very burdensome 50% (one of the highest tax penalties I know of) to 25%, which while still onerous seems much more reasonable, in my opinion, as most RMD mistakes I’ve encountered were not intentional.