Welcome everyone to the Railroad Retirement Whiteboard. My name is John McNamara, HighBall Advisors, and today we're going to talk about the Secure Act and Railroad Retirement. So, you've seen in the news a little bit about the Secure Act, maybe you have, maybe you haven't. But, anyway, it's a huge change to retirement system that the Congress passed and president Trump signed at the end of 2019 and I just wanted to go over the effects that it's going to have on railroaders and their retirement. Just little subtle changes that you want to be aware of. It's a big bill and obviously a lot of goodies, a lot of giveaways, in there but I thought I'd just kind of highlight the things that railroaders should be kind of concerned about, right? Important stuff. Let's get started. There's a few issues here.
The first thing we want to talk about here is the new IRA rules, all right? We eliminate the stretch IRA for non spouse beneficiaries. What that basically means is that, currently, if you had a ... Let's say if you were a beneficiary on an IRA, if somebody who passed away, let's say an uncle or something like that, and they put you down as a beneficiary, well, you had it a lot longer time to take those withdrawals out of the IRA based off of your lifetime. Well, now they're going to eliminate that and you have 10 years to take your distributions out of your IRA, right? Basically, what the government's trying to do there is say, "We want our money in 10 years, not over your lifetime", because you could be a lot younger than the person that's deceased and they want to be able to get their money for 30-40 years per se. Under this way they know they'll have the money in 10 years, all right? That's the elimination of the stretch IRA.
This one I thought was very important for railroaders is the RMDs moved from 70 and a half to 72. RMD required minimum distribution, right? The money you have to take out of your 401k IRA when you reach the age 70 and a half, right? The minimum amount you have to take. Why I think that's important as far as railroaders go, because one of the big things in retirement, two big things in retirement is tax planning and healthcare. But just from a tax planning purpose, if you're a railroader who retires at 60 with 30 years or below the full retirement age is 67, this gives you a great opportunity to do those Roth conversions. If you're a 1630 you now have 12 years to do Roth conversions.
And what I mean by that is, if you retire, your income has come down significantly, right? And it gives you a chance to do some conversions into Roth IRA so when you reached the 72, you won't have to do a big RMDs, so to speak, because all your money from then is now tax-free, right? Roth IRA is tax free money because you've been paying your taxes from 60 to 72 at a very low rate because you don't have any income per se or minimum amount of income at those low tax rates. This is a great opportunity here. Good planning goes on right there from 60 to 72 for your 1630 people and even your people, they retire earlier, this is something that you want to take advantage of with your planner.
What else we have? Removal of 70 and a half contribution age limit. Okay, another thing, and as you could see what's going on here, thematically, what the government is trying to do here is they're saying, "People, you're living a lot longer, you need to start saving some money and we can't afford it", because they just want you to save money. If you're working past 70, 70 and a half, you can keep contributing to an IRA or four one K. That's been moved out, right? That's good. A good way to put some money away later if you continue to work and you don't need it, you can put that in there.
Let's see. $5,000 qualified for birth and adoption. That's kind of nice, right? Once again, this government's saying, "Listen, we want more kids in the country here, right? Our population's actually not growing as fast as it should. Here's $5,000, no penalty from withdrawal, add your IRA or your 401k to help assist you in qualified birth and adoption." That's, that's all the IRA rules.
Let's move over to the 401k side of the ledger here. This is kind of tactical. I'll read it real quick and then kind of give you the interpreted, right? Provision of ERISA fiduciary safe harbor for selecting annuity providers in retirement plans. Basically, you have these 401k plan providers. They really don't want to offer you annuities. In fact, only about 10% of 401ks offer annuities and the reason being is, if they offered you an annuity, let's say from XYZ insurance company and something was to happen to that insurance company, then the plan provider would be on the hook if that insurance company went down. That's not good so they snuck this in. Well, I shouldn't say snuck but the insurance company lobby, it is what it is. They put that in there. Now the plan providers are off the hook and now they can make annuities more available to you.
Now, if you know me and railroaders, right? Big pet peeve. You're going to see a lot of these annuities come at you. I'm not a big fan of the annuities for railroaders, right? Our tier two, we've been paying for these annuities, we don't need any annuities out of our 401k. Think real long and hard before you commit to an annuity in your 401k plan. I'm not a big fan of it. If you want discuss it with me, feel free to reach out to me, but watch that. You're going to get pushed a lot of annuities by these insurance companies. That's kind of a win for the insurance industry there. Watch that one.
Automatic enrollment increased from 10% to 15% your 401ks, right? Once again, not really saving a lot of money. If you're just one of those people saying, "Oh, I don't know what to do with my 401k ..." They're going to move you up to 15% of your income is going to go into a 401k versus the 10% so they're just going to force you to keep saving money for retirement. They're concerned. You're living longer, like I said, and we do have little concerns about social security, obviously. This one I thought was interesting, part-time employers eligible to participate in 401k plans, right? If you're just working a few hours, you could still put that money away into a 401k plan and that's actually kind of good also if you've retired and then you have a part time position, let's say, and you do 10 hours a week. You have to do a minimum of 500 hours. But if you do 10 15 hours a week or whatever, you can follow that into a 401k plan, which is nice and that's great way to put some money away in that. Keep an eye on that one. There's some advantages there for people who want to continue to work. I'm not saying in the railroad industry but another position in a part time basis, keep the mind active, that type of thing. There's opportunities there.
And then this one is just kind of the elimination of 401k loans by credit card. I know there's circumstances where people have to take 401k loans, emergencies, I get that. They're just going to try and make it harder to take those 401k loans. Try not to take the 401k loans hurting your retirement. It's tough to catch up on it. But they're just going to make it a little harder by eliminating credit cards, which I think makes good sense.
A couple of other provisions over here, which not really doing with retirement, doing with with other things, other goodies. Qualified education expenses on your 529s for student loans. You can take your 529s and pay down some of the student loan debts. That will be good. That's good news because you know we have a student loan problem so if we can use some of the 529 money, I think that would be great and I'll use that with my kids. That will be helpful.
Allowance for Disaster Distributions up to 100K. People living along the coast and even you people in the Heartland, you had some floods this last summer, very wet. You can take up to a hundred thousand dollars out of your retirement funds to pay for disaster relief. Obviously insurance is the best but some individuals, if the insurance thing cover everything, or you need to rebuild, you could take up to a hundred thousand dollars without any penalties out of your retirement to fund the disaster distribution. That's important there.
And then they threw a couple of tax breaks in here. Qualified education expenses, tax breaks there, and mortgage insurance premiums. Again, deductible tax breaks there. That's, basically, the Secure Act. You'll see it, now you'll know a little bit about it, you can chat about it and tell some of your fellow co-workers and friends and family. I hope you found this useful. Please subscribe to my YouTube channel. I appreciate that. I get a lot of good subscribers there, enjoy that. If you need any help, feel free to reach out to me for a free meeting. Love to do that, love talking to people. In the meantime, everyone please stay safe. Stay on track and take care. So Long everybody. Bye.
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