Overnight Congress released new version of SECURE 2.0 as part of the omnibus. It may pass this week.
The proposed law has several problems. One of them is it over relies on employer plans for YOUR retirement. A second is it introduces wage limits on certain parts of 401(k) plans, which is a bad idea and opens the door to make 401(k)s even more complicated.
00:00 Introduction
01:22 Wrong Approach
04:04 Income Limits in 401(k)s!
07:14 What’s Next?
The full omnibus bill text is here (SECURE 2.0 starts on page 2046):
I’ve tweeted about various aspects of SECURE 2.0. You can follow me here:
At 05:57 I said “IRA” when I meant to say “401(k)”. Sorry!
I have a plan for reforming American’s retirement tax laws:
This video, the show notes, description, and any comments are for educational purposes only. They do not constitute tax, legal, financial, and/or investment advice for any person. Consult with your own advisors regarding your own matters….(read more)
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Thanks for your input on Secure 2.0 – I noticed too many videos just repeating the information and not critically analyzing the changes and your critical thought is most welcome. For me, I was already doing some roth conversions with the offset of the extra tax-deductible catch-up contributions using a rollover ira up to the top of my tax bracket so its more of an annoyance they changed this rule but I recognize for others this could be genuinely disadvantageous.
I like Secure 2.0 simply because of the pushing back of the RMD ages (as I understand at the time of this writing -12/22/22). To your point about the focus should be on IRAs instead of 401k because most people move around jobs more frequently: Many 401k’s tend to give company matching or simply non-matching contributions, something that currently does not happen with IRAs. This gives a person potentially more retirement assets. Plus, a person has the option to rollover their 401k assets to an IRA upon leaving a company. Therefore, the option to give a person more control of their retirement savings is there, especially if they are switching jobs on a more frequent basis. That’s my opinion.
You are spot on. They keep looking only at income without realizing liabilities untill kids get out of college and high cost of healthcare.
There's something else being done though that you did not mention. There's an effort to pensionize the 401K system. Secure Act 1.0 allowed this and 2.0 allows this even more. There's a company called Micruity which is enabling portability of annuities inside 401Ks as employees change jobs. I get it the IRA is the most efficient way. However, in order to get a really good system to work, I don't see any way unless you start with the 401K. Maybe eventually the IRA can catch on, but it's too early at this point.
What they should do is make it like an HSA. An HSA really isn't employer sponsored or individually sponsored. It can be both. When you leave your employer you it sort of turns into an IRA. I have an idea on investing, and I'm afraid when you read my article linked in the description and pinned comment it backs up what you are saying that the IRA is the most efficient way to go here. https://www.youtube.com/watch?v=hY3MMgvlB4o&t
Thanks! I agree completely on the need to drive towards a Canadian-style individually-driven retirement system that is independent from employers. What we have now, with all these different types of accounts is insane! I tried to explain some of this to my college-age kid who's going to be dealing with this soon, and was actually embarrassed to explain this cluster – ugh! That said, my guess is that it will pass since there seem to be 10 "squishy" R's in the Senate that want to demonstrate "bipartisanship" even if it means voting for this mess, and especially since I'm sure there are lots of sweet sweet pork barrel projects buried in there for them. Thanks again for the video, and have a happy holiday season!
Great video Sean; thanks!