Page 40 - Investment Advisor June 2021

that’s a long way out, a lot of changes.” these new limits would be utilized in $126,000),” LaBrecque said. “With infla-
Slott added: “My feeling is they scale, if passed.” tion rearing its ugly head, we need to
should just kill lifetime RMDs all Also, McKenna opined, “raising the save more and this helps.”
together; there’s no need for any age, RMD age would only put added pres-
for anybody to take lifetime RMDs any- sure on generating additional tax reve- LIVING LONGER
more; [Congress] took care of that in nue from income or capital gains. I don’t Sarah Carlson, an advisor at Fulcrum
the Secure Act when they put it [at a] think the cost-benefit is there for most Financial Group in Spokane, Washington,
10-year end date for most non-spouse workers, especially when there’s no tell- opined that raising the RMD age and
beneficiaries. So the money has to come ing what the tax code will be when the expanding the automatic enrollment for
out — other than a spouse, for non- RMD age applies to them.” retirement plans “makes sense,” as “peo-
spouse beneficiaries by the end of the Leon LaBrecque, chief growth Officer ple are living so much longer than their
10th year after death. So why bother at Sequoia Financial Group in Troy, ancestors and many need to work longer
raising the age and causing all these Michigan, said Secure 2.0 “will let us to build up assets for non-working years.”
complications and annoy- Too many people, she
ances for other people?” While “allowing individuals to save said, “are not prepared for
Still, raising the RMD the rising cost of living
age does have “some more for retirement is clearly a and long-term care costs.
advantages,” Slott contin- … Similarly, expanding the
ued. “But the longer you good thing … the way the bill has automatic enrollments for
put it off, the larger the IRA proposed accommodating that is retirement plans make it
grows and the more has to automatic and due to lack
come out once you hit 73, 74 likely to confuse many investors.” of financial literacy, too
or 75,” he said. “So people many people don’t proac-
could be facing larger bills —Kristin McKenna, tively save.”
later in life as the account Walters of Summit Hill
grows. But for most people Darrow Wealth Management Wealth Partners, who
it doesn’t help.” advises companies with
According to the IRS, 80% of the potentially take money out later (at 75) retirement plans, agreed that the auto-
people “take the RMD amount or more put more in (in a weird rule for 62-64 enrollment and auto-escalate features
because they need the money,” Slott said. year old, but not 65).” “are a fantastic way to help workers,
“So telling them they don’t have to take “The catch up for 62-64 is great, but particularly younger workers, save for
money they need doesn’t do anybody makes no logical sense,” LaBrecque said. retirement without feeling too big of a
any favors. It only helps the people who “We now have another ‘donut hole’: I financial pinch.”
don’t need the money, which means they can do a ‘regular’ make-up from 50 to Secure 2.0 requires 401(k) and 403(b)
probably have larger IRAs and they’ll be 61, increase it from 62 through 64 and plans to automatically enroll participants
facing bigger tax bills later.” drop it back by 65. I’m perplexed by the when they become eligible; employees
65 rule: It has no correlation to other may opt out of coverage. The initial auto-
CONFUSING RULES provisions (except Medicare, which is matic enrollment amount is at least 3%
Kristin McKenna, managing director at illogical). If you were 65 in 2021, you but no more than 10%, then each year that
Darrow Wealth Management in Boston, were born in 1956, and as such, can’t amount is increased by 1% until it reaches
said that while “allowing individuals even collect your full Social Security 10%. All current 401(k) and 403(b) plans
to save more for retirement is clearly a benefit. The drafters should just allow are grandfathered. There is an exception
good thing … the way the bill has pro- an enhanced make up for 62 and older.” for small businesses with 10 or fewer
posed accommodating that is likely to From a policy perspective, however, employees, new businesses (i.e., have
confuse many investors.” it “is great idea to allow more older been in business for less than three years),
For instance, it may be a challenge Americans to save more. Too many peo- church plans and governmental plans.
for them to fully grasp details about ple are no longer in defined benefit “This change could have a massive
“the annual indexing for catch-up con- plans and will rely on savings to retire,” impact on how well prepared Americans
tributions, what you can contribute at LaBrecque continued. will be for retirement in coming
50 versus from 61 to 62, and the vari- A Federal Reserve Survey of decades,” Walters said.
ous RMD breakpoints over the next 11 Consumer Finances shows “that the
years,” said McKenna. “With so many average 64-74 year old has only $358,000 Washington Bureau Chief Melanie Waddell can
rules to remember, I’m unsure whether saved for retirement (median is a scary be reached at [email protected].

38 INVESTMENT ADVISOR JUNE 2021 | ThinkAdvisor.com