JUST PLAIN TALK: It is OK to change your mind
On Dec. 20, 1970, in a “Meet The Press” interview, Nobel Laureate Paul Samuelson defended altering his views on expected inflation. “When events change, I change my mind. What do you do?” Sometimes we misinterpret facts or get the story wrong. It may be better to change your mind even when circumstances don’t change, too.
Over the last few years, Congress has been trying to pass legislation raising the age for required mandatory distributions for IRAs and qualified retirement plans. A benefit of getting older is at age 70 ½ I can spend some of the money I’ve saved. If I’m not forced to make withdrawals, my wife won’t let me. A frugal spouse is undoubtedly beneficial, but there can be a downside.
Last May in a once in a blue moon occurrence, the fractious House of Representative passed with only three nay votes, the Setting Every Community Up for Retirement Enhancement Act of 2019. Thanks to a staffer’s insight, the legislation goes by its acronym, Secure Act and was widely expected to sail through the Senate. However, Senate Leader Mitch McConnell has refused to bring it up for consideration instead preferring to pass it by unanimous consent.
Despite the fact the legislation would have hindered my ability to access my savings without spousal consent, I supported the bill, initially. I changed my mind because the law allows a “safe harbor” for annuities as 401K plan investment options. Under the ERISA act of 1974, companies offering 401K plans have a fiduciary obligation to participants. If a company fails to act in the best interests of the participants, the company is liable, a fact borne out in numerous courtrooms. While there can be situations when an annuity is appropriate, many annuities would be hard-pressed for fiduciary consideration hence the safe harbor clause.
About the time I changed my mind, a Wall Street Journal opinion piece (July 9, 2019) skewered the Secure Act with the ominous headline “Congress is Coming for Your IRA.” Governments tax retirement plan distributions as ordinary income and bean counters worried that raising the mandatory age would decrease revenue. To offset the revenue decline, the Secure Act would end the ability for non-spouse beneficiaries to stretch inherited IRA distribution over their lifetime. Instead, children, grandchildren, nieces, and nephews would have to empty the retirement plan within 10 years. By the Journal’s hyperbole, you would think Karl Marx was returning from the grave. Few eight year old’s (or anyone) inherit $1 million IRAs.
Bottom line, I agree with the Journal; it’s a lousy piece of legislation. Instead of waiting for unanimous consent, hold hearings on the bill. Perhaps smaller IRAs could be exempted from the 10-year deadline. Some argue raising the age doesn’t affect revenue. Let the legislation’s proponents make their case on the bill’s merits in open debate.
You can’t always get what you want but Buz Livingston, CFP can help you figure out what you need. For specific advice, visit livingstonfinancial.net or drop by 2050 West County Highway 30A, M1 Suite 230.