If you are saving for retirement, bless you! If you are not, you need to start. The United States Government just gave us more opportunities to save for retirement by enacting the SECURE Act 2.0. This legislation is very complicated. Typical of congressional action, it is filled with complicated language and requires detailed expert analysis to comprehend. Some of the provisions in SECURE Act 2.0 are still needing further interpretation (by the IRS and U.S. Department of Labor, for instance). In this article I’ll share my opinion and thoughts on this complex new law. The “big picture” view of this legislation is fairly simple: 1) Not enough Americans are saving for their retirement future. 2) The U.S. government is moving with new rules and options for Americans to start saving for retirement, and if they are saving for retirement, to increase their options for a financially secure future retirement.
Social Security, at its current level of funding and payout, is not sustainable. We have, in the past years, seen large changes in the rules pertaining to Social Security. There is no doubt that in the years to come we will see many more changes in Social Security. The original intent of the Social Security System was NOT to assure a secure retirement for ALL Americans. The original intent was to help keep people from living in poverty and squalor in their old age. We, most all of us as Americans, have morphed the Social Security system into an entitlement for everyone to take advantage of such that we depend on it for most every American regardless of their economic status. We also now have a life expectancy that was not even fathomable at that time. On August 14, 1935, the Social Security Act was signed into law.
“We can never insure one hundred percent of the population against one hundred percent of the hazards and vicissitudes of life, but we have tried to frame a law which will give some measure of protection to the average citizen and to his family against the loss of a job and against poverty-ridden old age.” —President Roosevelt upon signing Social Security Act
Although amended and added to, and taken away from, over the past 88 years, the U.S. Social Security System is still a model for the world. Congress and the President have now taken steps to more bluntly tell us that Social Security is not enough for us to retire with financial security. We need to expect ongoing changes in the Social Security System – it is inevitable. The current funding and spending process is not mathematically sustainable. In other words, we are having to now start taking our medicine, and in a substantial way. One way this is occurring is through a higher tax on Social Security earnings paid out. The more you make in other income while receiving Social Security benefits, the more of your Social Security benefits will be taxed. Another change is the amount of income that is subject to the Social Security tax. In 1986, the year I first started in practice, the maximum income subject to Social Security tax was $42,000. In 2023 the maximum income subject to Social Security tax is $160,200.00. This amount is currently being indexed/increased each year by an inflation formula. Another area of change attempting to shore-up the Social Security system is age of benefits. Although a person can begin drawing Social Security retirement benefits at 62, there is a steep penalty applied (approximately 8% per year prior to “Full Retirement Age,” otherwise known as FRA). Let’s face it, we’re living longer and stronger. We have excellent medical advancements that help us live longer, stronger lives. As my sweet grandmother used to say, “We generally work into our mid-to-late 60’s, after which, most folks spend a few years in retirement, then politely die.” We’re now living much, much longer than ever before. The futurists believe this is very likely to get even longer. Some of the predictions from these folks are hard to fathom even today.
The U.S. government is now attempting to persuade us, more than ever, that we need to start saving more of our own money to help secure our retirement. SECURE Act 2.0 provides several new rules and options to help individuals and businesses save for a more financially secure retirement. Many of the provisions of this huge law promote and encourage saving for retirement. For companies that do not presently have a plan, there are tax incentives for the start-up, administrative, and even contribution monies for many employers. In other words, for some businesses, the government is offering to give you money to start a plan – even give you money for some employee contributions. Yes, it’s complicated. Some of the provisions are still being interpreted. Some of the provisions do not take effect until later years. But SECURE Act 2.0 is now enacted into law.
Please call on us if we can help you with saving for your retirement or if we can help you with a business retirement plan.
It is important to note that none of this information is to be construed as tax advice. I am not a CPA or an attorney, nor do I give tax or legal advice. The provisions within SECURE Act 2.0 are technical and complicated. I always urge our clients to consult with their CPA, tax advisor, retirement plan third-party administrator, and attorney.
-by Ben Smith
Registered Principal, RJFS
313 East 10th Ave. • Bowling Green, KY 42101 • Phone: 270-846-2656
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