I've never been a fan of the government stepping into the private marketplace and dictating what business owners should, and shouldn't do. This new law is no different. State government officials would argue that millions of employees fail to plan for their retirement, and by implementing such a program, the gap in retirement funding will be lessened. Although that may be partially true, I believe the private marketplace will always do a better job of filling those gaps. The government has however, implemented a new tax credit so that if the employer wanted to set up a private retirement plan, such as a 401(k) or a SEP IRA, or a SIMPLE IRA. (Reach out to us if you want help with any of these by the way)
Although the new law goes into effect June 30th 2020, that specific date is only for employers with over 100 employees. If you have over 50 employees, that date is June 30th of 2021, and over 5 employees, you will have until September of 2022 to put together your companies retirement plan.
Also, within this new legislation known as the SECURE ACT, there are some new tax provisions that people should know about. First, the so-called "Stretch IRA" provision is gone. This is really unfortunate, as it was a fantastic way to get creative with estate planning, something I absolutely love to do. Essentially, if the owner of an IRA passed away, and a non-spouse was the beneficiary, the IRA would then become an Inherited IRA. With these Inherited IRA's, the beneficiary would only have to take distributions from the IRA based on their age and actuarial tables. Sometimes those distributions would be as low as 2%, which would allow the IRA to continue to grow tax-deferred, a tremendous tax planning benefit.
With the new law, the IRS wants the beneficiary of the IRA to exhaust the IRA's balance within 10 years, no more than that. The only reason I can think of, as to why they'd want to do that is to increase tax revenue. The way they're looking at it is, "Hey, we've been giving you this growth and haven't stuck our fingers in to get our cut yet, so now we're going to force you take money out so we can tax you on it." I could be wrong, but I'm probably not.
One great thing that was passed in the legislation was the age of RMD's (Required Minimum Distributions) was pushed back to 72 years old, from 70 1/2. That gives the account another one and half years of tax deferred growth. Also, now if you still have earned income, you can contribute an IRA, whereas before, you that wasn't allowed.
Lastly, college funding plans, better known as 529 accounts, can now be used to not only pay for higher education, but also can be used to pay off student loan debt. This is a huge win, especially with the astronomical amount of student loan debt circulating in our economy.
As a financial advisor, I only recommend plans to business owners after careful review of their specific needs, but I must admit, I would more often times than not lean towards a private retirement plan, instead of CalSavers, especially if you want to attract and retain quality talent.