There are new benefits to ensuring strong retirement law, but they are not free
There’s still a lot of buzz among finance and retirement professionals about the Securing a Strong Retirement Act making its way through Congress on a (relatively) rare wave of bipartisanship. The financial press has started calling this legislation âSecure Act 2.0â because SSRA is not a good acronym.
A word on acronyms: Congress likes to suggest catchy acronyms (an acronym is defined as “a word formed from the initial or the letter or letters of each of the successive parts or main parts of a compound term”) for legislation so that the law is more easily remembered by the population. For example, the PATRIOT Act stands for “Provide the appropriate tools required to intercept and hinder terrorism”.
One of SSRA’s most interesting proposals is to further delay the requirement to take minimum distributions (RMD). In the original SECURE law, this was done relatively easily – the age of RMDs was changed from 70 and a half to 72 for those born on July 1, 1949 or after. up to the age of 75 does not have a clear dividing line, but rather extends over a period of ten years. Here is how the law would gradually increase the age to receive the required distributions:
Age in 2021 | Age to start RMD
72 | 72
66 – 71 | 73
64 and 65 | 74
63 years or less | 75
One thing lawmakers don’t want to do is make changes to the law that you or I could easily understand.
Another interesting aspect of SSRA is how some of the proposed changes will be paid for. There has to be a compromise because (as they would have us believe) there is no free lunch. A few years ago, when the SECURE law was being drafted, how beneficial changes (e.g. extension of RMD to 72, etc.) would be paid for was only discussed at the last minute. At this last minute, the law was changed to eliminate the “IRA stretch”. This did not affect those who planned to leave their IRA (or TSP for that matter) to their spouse or someone who was less than 10 years younger, but it took away the ability of other beneficiaries (e.g. , children, etc.) to stretch IRA payments over their lifetime. For these “ineligible named beneficiaries”, the law was changed to require them to empty the inherited IRA within 10 years. This has disrupted the estate planning strategies of many people.
I think we won’t know how SSRA will be paid until the game is over. Your estimate is as good as mine as to the benefits that will be reduced in order to pay for the new benefits that are extended. Be sure to pay attention to the changes so that you can take action, if necessary, to avoid the negative consequences.
Rollovers: transferring your money out of the TSP
TSP: Common Misconceptions
Lessons Learned Increase TSP Balance Beyond $ 1 Million
Federal benefits and retirement dates
TSP: don’t burn it, but don’t be afraid to spend it
FERS retirement package: FERS 2021 guide and TSP manual