Silvur CEO Rhian Horgan on reforms the Biden administration has in store for retirement savings plans
During the final presidential debate before the election, President Donald Trump issued a dire warning about his Democratic opponent to the millions of Americans saving for retirement.
“If he gets in, you will have a depression the likes of which you have never seen,” Trump said. “Your 401(k)s will go to hell.”
President-elect Joe Biden does have some big changes in mind for retirement saving plans, but those reforms don’t spell doom for the 401(k), says Rhian Horgan, the CEO of retirement planning app Silvur. The reforms lined up now would enhance retirement saving laws passed under Trump and aim to make saving possible for more Americans.
A bipartisan bill would build on the SECURE Act, which when it came into force earlier this year, was the “most consequential piece of retirement legislation modernization that we have seen in decades,” Horgan said.
The SECURE Act pushed back the age at which you’re required to withdraw from your IRA, repealed the maximum age for IRA contributions and allowed part-time employees to participate in 401(k) plans. These measures support the changing nature of retirement in America, “one where we are living and working longer,” Horgan said.
The SECURE Act 2.0, as it’s being called, would build on that momentum. It further delays the age at which you’re required to take money from an IRA, allowing savers to extend the benefit of tax deferrals. And it raises the cap on catch-up contributions from $6,500 to $10,000, encouraging Americans to put away more as they approach retirement.
Biden has also hinted at a major overhaul in how 401(k)s are taxed — a change that would swap the current tax deduction model with a tax credit to equalize benefits across the income scale.
As Horgan explains it:
“Our current system of tax deferral means that consumers with higher incomes are benefiting from higher tax savings than those with lower incomes. For example, if you are earning $100,000 as a single individual (and taxed at 24%), if you put 10% of your earnings in your 401(k), you benefit from $2,400 in tax savings. If however you are earning $50,000 a year and put 10% away, your tax savings are $600.
With Biden’s new plan he would provide a universal credit (at 26%) which means the consumer earning $50,000 would see their tax savings increase to $1,300.”
Apart from retirement savings reform, the president-elect also has his eye on a handful of other measures that will shape how we plan for retirement. The expansion of an earned income tax credit, which as it stands isn’t available to workers over 65, would go a long way toward helping the growing number of people choosing to work part-time before transitioning into retirement, Horgan said.
Biden also supports an increase in Social Security benefits for widows and widowers, and a $5,000 tax credit for caregivers — a “welcome recognition” of the enormous financial burden faced by many Americans caring for their aging parents, Horgan said.
Though these reforms have yet to be imposed, Horgan said that shouldn’t deter people from putting together a plan now and taking a hard look at how factors like social security, the cost of health care and part-time income will impact their retirement.