On April 2, the House Ways and Means Committee unanimously authorized legislation targeted to small businesses to increase retirements savings.
On the surface, this sounds positive but as usual, the devil is in the details. Major topics in the bill would:
- Allow small businesses to join together to offer employees retirement plans. Having a larger group within a plan should reduce costs of having a plan. It should allow more employees to participate in a retirement savings account.
- Provide legal protections to the employers offering the plan.
- Allow the plan to include annuities.
- Require benefit statements projecting lifetime income.
- Raise the Required Minimum Distribution (RMD) age from 70.5 to 72.
- Require Inherited IRAs to begin distribution within 10 years.
We have a concern about annuities being included as an offering. The insurance lobby was very active. Please remember that annuities are “sold.” In the fee-only planning world, annuities are rarely recommended because of the high expenses to own them.
Another concern is the lifetime projections of retirement income. Depending upon what rate is used, this number could be very misleading.
We applaud raising the RMD to age 72. With people living longer, this is a logical next step. It doesn’t mean you can’t take money from your IRA earlier; it just means you don’t have to.
Inherited IRA distributions within 10 years may not be an advantage to younger people because it may cause them to take it earlier than they do today. The withdrawals are taxed as ordinary income. We have not seen how fast it would require distributions to be made (e.g. based on your age, a revised table, etc.).
We’ll be watching how this bill proceeds.