Spending Bill: Big Changes for Retirement System
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What is the main topic discussed in this episode?
Here's your money briefing for Friday, December 20th. I'm J.R. Whalen at The Wall Street Journal in New York. The spending bill approved by Congress this week includes the most sweeping changes to the nation's retirement system in more than a decade. Wall Street Journal reporter Ann Turgason has read the bill, and she'll be here to explain the changes. First, some money and market news you should know. The Trump administration is floating ideas to help 42 million Americans with their $1.5 trillion in student loan debt. One would be allowing borrowers to refinance loans at lower rates. Another proposal would make it easier for borrowers in bankruptcy to eliminate debt on student loans. The administration's plan doesn't include large-scale student loan forgiveness, which has been proposed by several Democratic presidential candidates.
The White House and the Department of Education feel that a program to cancel a large portion of student debt would be unfair to taxpayers and unpopular among Republican voters.
What major retirement changes are in the new spending bill?
Some part-time workers and small businesses have been left out of 401k retirement plans until now. The spending bill passed by Congress, which is expected to be signed by President Trump, calls for the most significant changes to the nation's retirement system in more than a decade. And Wall Street Journal reporter Ann Tergesen is here with the details. So, Ann, one of the most prominent changes to the laws governing retirement reflect the fact that more people are putting off retirement. Many are working into their 70s.
One of the purposes here was to enable people to invest more if they continue to work. So, you know, it currently under current law, if you're 70 and a half or older, you cannot you can no longer contribute to a traditional IRA. And under the law that changes, they're repealing that that age cap on contributions.
So the age cap goes to 72.
No. If you want to contribute to an IRA, there is no longer an age cap. But in order to contribute to an IRA, you have to have wage income, so you need to be working. What you're referring to is the age for taking required minimum distributions. If you have a 401k or an IRA, a tax-deferred account, under the law, the government requires you to start taking money out of those accounts at a certain point. in time. Currently, that age is 70 and a half. Under the new law, it's going to be raised to age 72. Again, in recognition of the fact that people are living longer and so requiring them to drain their retirement account starting at a later age, in theory, enables them to maintain the money in that account for longer.
And also under the law, 401K plans could soon offer products with guaranteed income payments.
How will raising the RMD age to 72 affect retirees and savers?
Currently, 401K plans can offer annuities is basically what the issue is here. But very, very few of them do, in part because employers are just worried that they're going to be legally liable if they choose an insurance company to offer an annuity and then that insurance company later annuities. has financial difficulties and can't pay as promised. So under this new law, it gives sort of a safe, what's called a safe harbor. So for employers who follow certain procedures when selecting an insurance company to provide annuity, the law will provide some protections against legal liability if that insurer ultimately doesn't pay on, you know, what it's supposed to.
There are also some fees involved when annuities are in 401k plans.
Can older workers still contribute to IRAs after the age cap is removed?
Right. So there's fees involved with everything, you know, with mutual funds and different types of investments in 401k plans. Annuities tend to have higher fees than just a plain mutual fund does, in part because they offer, in many cases, they offer some kind of guarantee that they will pay income for maybe your lifetime or a set number of years. So you pay for that guarantee.
And there's good news in the law for part-time employees. The law will allow them to join 401k plans.
Right. So currently people can join a 401k if they work part-time, but they have to be working at least 1,000 hours a year.
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Chapters
5 chapters
1
What is the main topic discussed in this episode?
0:05–1:08
2
What major retirement changes are in the new spending bill?
1:08–2:50
3
How will raising the RMD age to 72 affect retirees and savers?
2:50–3:36
4
Can older workers still contribute to IRAs after the age cap is removed?
3:36–6:08
5
How will 401(k) plans offer annuities and what liability protections exist?
6:08–6:12
Speakers
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