The rules of the retirement game just saw a sizable overhaul in Congress, giving a nod to the reality that many Americans can't afford to quit working.
The changes aren't massive enough to put to rest concerns about an upcoming retirement crisis where some forecast a growing gap between the haves and have-nots. Even so, the adjustments are likely to help some households boost their retirement savings.
The new law, signed by President Donald Trump in late December, has key twists for those who work at small businesses, those who steadily work part time at a given company and those who are worried about whether they're on a bleak path to outlive the money in their 401(k). Eventually, workers may see their 401(k) plans begin to add options that offer annuities in their 401(k) plans, too.
The SECURE Act -- or the Setting Every Community Up for Retirement Enhancement -- offers small business owners some additional tax incentives for starting a retirement plan and seeks to make it less costly to do so. Financial services firms would be allowed to offer new multiple employer 401(k) plans to unrelated small companies with unrelated businesses.
Workers who spend a large chunk of their careers at small companies that do not offer pensions or 401(k) plans are particularly vulnerable to an inadequate level of savings to cover the bills in retirement.
Here's a look at some points to know:
-- Turning 70 in 2020? New rules can help delay spending savings.
Start thinking of age 72, instead of 70 and a half, if you want to delay taking money from your IRA or 401(k) for as long as possible.
Under the new law, savers who are currently in their 50s and 60s wouldn't be required to take a minimum distribution from retirement savings until they hit age 72.
Taking out the correct required minimum distribution, or RMDs for short, is essential each year, especially since the penalty for not doing so is 50% of what you should have taken out that year. The penalty is in addition to the ordinary income tax you pay on the money you withdraw from the retirement accounts. (Tax experts at H&R Block note, though, that it is possible to get a waiver by making the appropriate withdrawal as soon as the mistake is discovered and filing Form 5329 with an explanation of the error. If the IRS considers the error to be reasonable, the penalty will be waived. It may help to talk with a tax professional.)