Apr 4, 2024 By Gary Boatman 3 min read

Today, baby boomers are more responsible for their own retirement than any generation since the industrial revolution. That was the period of time when U.S. industries moved from items being individually produced by craftsmen, to coming from factories. This allowed goods to be produced quickly and also allowed prices to be reduced to levels that the middle class could afford.

At that time, imports were mostly natural resources and not completely manufactured goods. As domestic companies grew more numerous, they often had to offer benefits such as pensions to attract and retain employees. Since U.S. auto manufactures and other industries were only competing against other American companies with similar wages and benefits, they could offer things such as pensions.

American society was not as mobile in the early days, so younger generations often lived in the same communities and worked for the same employer as their parents. When employees retired after 40 or so years, they would collect a pension and maybe get a gold watch for retirement.

As more foreign competition entered the U.S. markets, the game started to change. Sometimes these new companies came from areas with lower wages, cost of living and maybe lower environmental standards. This required companies based in the U.S. to take some steps to stay competitive. One of them was to eliminate pension plans. This option became a lower cost way to replace pensions.

As companies were searching for pension alternatives, Ted Berna discovered Section 401(k) in the Revenue Act of 1978. This became the accidental retirement plan as employees could defer some of their income and grow it tax deferred until it was withdrawn.

In 2020, the Secure Act 1.0 was passed into law. This law raises the age for required minimum distributions (RMDs) from age 70 ½ to 72. This is the time when people must take out at least a certain percentage of qualified money, or face a penalty. This is the way the government uses to collect some taxes on the funds that were never taxed.

The original Secure Act also encouraged more savings for retirement by automatically enrolling employees in certain retirement plans. The employee could opt-out, although that would probably not be in their long-term interest. Another provision eliminated a lot of the advantages of the stretch IRA. This had been a way to extend tax savings to younger generations.

Since the original law was passed, Washington, D.C., has updated some of the rules with Secure Act 2.0. This act clarified some of the points and modified others. The age for RMDs was increased to 73 with some younger workers knowing their age will rise until they reach 75. The penalty for not taking these distributions was reduced from 50% to 25%. If you realize that you missed these RMDs and you report the errors in the “corrective window” the penalty is reduced to 10%.

A provision of the Secure Act could make an exception of the 10% penalty for victims of domestic abuse. This could provide up to $10,000 and could pay back the distribution for up to three years. It also could waive the 10% penalty for public safety employees if they separate from their service in the year they turn 50 or older.

It is important to keep up to date on all changes in retirement law. Also, proactive tax planning can help you stay in control of your RMDs so that they do not push you into higher tax brackets or cause your Medicare Part B premiums to increase. Make sure that you have a plan.