According to the IRS, 80% of the people “take the RMD amount or more because they need the money,” Slott said. “So telling them they don’t have to take money they need doesn’t do anybody any favors. It only helps the people who don’t need the money, which means they probably have larger IRAs and they’ll be facing bigger tax bills later.”
Kristin McKenna, managing director at Darrow Wealth Management in Boston, said that while “allowing individuals to save more for retirement is clearly a good thing … the way the bill has proposed accommodating that is likely to confuse many investors.”
For instance, it may be a challenge for them to fully grasp details about “the annual indexing for catch-up contributions, what you can contribute at 50 versus from 61 to 62, and the various RMD breakpoints over the next 11 years.” Said McKenna: “With so many rules to remember, I’m unsure whether these new limits would be utilized in scale, if passed.”
Also, McKenna opined, “raising the RMD age would only put added pressure on generating additional tax revenue from income or capital gains. I don’t think the cost-benefit is there for most workers, especially when there’s no telling what the tax code will be when the RMD age applies to them.”
Leon LaBrecque, chief growth officer at Sequoia Financial Group in Troy, Michigan, said Secure 2.0 “will let us potentially take money out later (at 75) [and] put more in (in a weird rule for 62-64-year-olds, but not 65).
“The catch-up for 62-64 is great, but makes no logical sense. We now have another ‘donut hole’: I can do a ‘regular’ make-up from 50 to 61, increase it from 62 through 64 and drop it back by 65,” LaBrecque explained.
“I’m perplexed by the 65 rule: It has no correlation to other provisions (except Medicare, which is illogical),” he added. “If you were 65 in 2021, you were born in 1956, and as such, can’t even collect your full Social Security benefit. The drafters should just allow an enhanced make up for 62 and older.”
From a policy perspective, however, it “is great idea to allow more older Americans to save more,” LaBrecque continued. “Too many people are no longer in defined benefit plans and will rely on savings to retire.”
A Federal Reserve Survey of Consumer Finances shows “that the average 64- to 74-year-old has only $358,000 saved for retirement (median is a scary $126,000),” he said. “With inflation rearing its ugly head, we need to save more and this helps.”
Sarah Carlson, an advisor at Fulcrum Financial Group in Spokane, Washington, opined that raising the RMD age and expanding the automatic enrollment for retirement plans “makes sense,” as “people are living so much longer than their ancestors and many need to work longer to build up assets for non-working years.”
Too many people, she said, “are not prepared for the rising cost of living and long-term care costs.”
Secure 2.0 requires 401(k) and 403(b) plans to automatically enroll participants when they become eligible; employees may opt out of coverage. The initial automatic enrollment amount is at least 3% but no more than 10%, then each year that amount is increased by 1% until it reaches 10%.
All current 401(k) and 403(b) plans are grandfathered. There is an exception for small businesses with 10 or fewer employees, new businesses (i.e., have been in business for less than three years), church plans and governmental plans.
“This change could have a massive impact on how well prepared Americans will be for retirement in coming decades,” Summit Hill’s Walters said.