44 INVESTMENT ADVISOR JUNE 2021 | ThinkAdvisor.comthe Secure Act 2.0 “is a mini-Rothification,and it’s about testing the waters.” Catch-up contributions are generally made bythose who’ve already put in the maximumtax-deferred contribution, he points out.
“This [measure] that involves the Rothwill capture some tax money. That’s apretty big departure from what we’veseen,” Cox said. “This is the beginning ofsomething bigger, and there’s going to bean ever-growing fractionof retirement planningcontributions that will berequired to be Roth.”
At the same time, ofcourse, “It’s possible thattax-deferred options willbe increasingly disallowedin retirement plans” asCongress looks to findmore tax dollars, he said.
For some people, thisapproach can be “a goodthing, because there’s a lotof people who would otherwise not doany [savings in] Roth accounts,” Coxpoints out. These accounts allow retirees to withdraw money tax-free.
“On the other hand, if you’re the typeof person who wants to defer taxes, thismove works against you,” he added.
“What I fear is that it will become easy,the next time [Congress] wants to raiserevenue, to start diminishing the regularcontribution to an IRA … and make it Rothonly,” Cox said. “They tried to do that inthe Trump tax bill. This is the second biteof the apple.” A provision in the Tax Cutsand Jobs Act 2017 would have requiredRoth treatment of catch-up contributions;it was eliminated before the bill’s passage.
In addition to the Rothification trend,Secure Act 2.0 also “indexes” the push-back of the beginning date of RMDs,so that it will move from 72 to 75 overa decade rather than immediately. Theoriginal bill that Congress worked onlast year made the switch at one time.
“But that isn’t going to fly right nowbecause such a move produces a revenueloss to the government which has to becovered,” according to Cox.
The bill that’s being built right nowaims “to get to the results they’re lookingfor” in terms of revenue targets and theability to clear both the House and Senate.
Another shift that’s happened to thebill is that individuals with retirement
accounts of less than $100,000 cannot
take tax-exempt RMDs. “This provision
is no longer part of this legislation for
the same reason — the revenue loss,” the
advisor said. “It’s a feature that should
have been in the new Secure Act … but is
not now in place.”
“Still, there’s a little horse trading
that’s been going on,” he points out.
One result of this political process is a
reduced tax penalty for those who fail
to take an RMD. It would drop to 25% of
the RMD from the current 50% if the bill
becomes law. “That’s a nice feature that
will be welcome,” Cox said. “That higher
penalty has been incredibly steep.”
IRA, 403(B) CHANGES
Additional shifts that are significant for
advisors and their clients concern the
ability of savers “to make SIMPLE and
SEP IRA contributions on a Roth basis,”
he said, referring to Savings Incentive
Match Plan for Employees
and Simplified Employee
Pension Plan Individual
“That’s an improve-
ment. There are lots of
people who would like to
make retirement plan con-
tributions in their SEP or
other [account] without
having to do so through
a 401(k). Being able — in
SEPs and SIMPLEs — to
have Roth contributions
is brilliant. That’s very much needed,”
according to Cox.
In addition, the current Secure Act
bill “harmonizes the hardship rules for
the 403(b) and the 401(k).” There are a
lot of challenges with 403(b) plans “that
are well known and well established,”
the advisor states. “So this change is
really important” as a means to help the
educators, nurses and other employees
who use these plans. “Their plan should
be as good as if not better than the
401(k). This is a good first step.”
“[Secure Act 2.0] is the beginning
of something bigger, and there’s
going to be an ever-growing
fraction of retirement planning
contributions that will be
required to be Roth.”
—Jamie Cox, Harris Financial Group
Milevsky: Advisors Should ChargeMore for Retirement Spending Advice
Moshe Milevsky is on fire when dis- cussing his most recent project:
explaining what decumulation really
means and outlining how it applies to
clients, advisors and the financial servic-
es industry in general. Here’s a hint: It’s
not retirement planning, but something
more complicated. Therefore, it should
be more expensive to clients.
Milevsky is a tenured professor atthe York University Schulich Schoolof Business in Toronto and a managing director of PI Longevity ExtensionCorp., a fintech company that develops