At Treasure Valley Financial Planning, our goal is to keep you well informed about what we are doing to help navigate the changing markets and provide information on other areas of personal finance you may find helpful. As always, if you have questions or concerns, do not hesitate to contact us today.
SECURE Act 2.0
Although the SECURE (Setting Every Community Up for Retirement Enhancement) Act was just signed into law in late 2019, Congress is already considering what many are calling SECURE Act 2.0. Both the House and Senate have drafted similar bills, and there appears to be widespread bipartisan support. While there is no guarantee of passage and the specifics could change, we are monitoring progress and believe now is a good time to provide a high-level overview.
- Easing the RMD bite, again. The SECURE Act raised the age at which Required Minimum Distributions (RMDs) from qualified retirement accounts must begin from age 70 ½ to 72. SECURE Act 2.0 would increase this to 73 in 2022, 74 in 2029, and 75 in 2032.
- A more favorable catch-up provision. If Secure Act 2.0 is passed into law as proposed,
the annual catch-up provision for 401(k)s and similar plans for those ages 62 through 64 will increase from $6,500 to $10,000 beginning in 2023. The caveat is that all catch-up contributions must be placed in a Roth IRA, which would disallow a tax deduction. Starting in 2022, all catch-up contributions must be made into a Roth IRA. Presumably, this is a way for the government to capture more revenue. Nonetheless, ROTH IRAs are not subject to RMDs, and withdrawals are exempt from federal income taxes.
- Student loan matching. SECURE Act 2.0 would permit employers to make matching contributions to their 401(k) plans tied to the employee’s student loan payments. The goal: encourage younger employees to save for retirement.
SECURE Act 2.0 would also:
- Allow Roth contributions to SEP and SIMPLE plans.
- Accelerate part-time workers’ participation in 401(k) plans.
- Extend to 403(b) retirement plans some of the features of 401(k) plans.
- Require the Treasury secretary to increase awareness of the Retirement Savings Contributions Credit (also known as the saver’s credit) available to low- and moderate-income workers.
- Eliminate some impediments to offering lifetime income annuities as a retirement plan investment option.
Absorbing unexpected surprises
During August, the rise in Covid cases tied to the Delta variant caused brief volatility. Still, investors are not on board with the idea that the health crisis will substantially slow the economic recovery and dampen corporate profits. While some locales are re-implementing mask requirements, we have yet to see the type of restrictions that were in place in 2020 and early 2021. For now, the market is viewing the vaccines as an inoculation against a rapid slowdown in the economy.
We also saw tragic events play out in Afghanistan. While the images have been difficult to see and the geopolitical ramifications are unknown, simply put, investors don’t expect the withdrawal to have an impact on U.S. economic growth over the next six to nine months. Let’s look at it from a more practical angle. Will consumers decide to delay a vacation, a big purchase, or choose to eat at home rather than dining in a restaurant because of what’s happening in Asia? It isn’t very likely.
As we enter September, investors will consider whether the very high prices of stocks can hold up to the Federal Reserve taking away the punch bowl later in the year. Eventually, a market pullback is inevitable. For now, powerful tailwinds have been supportive.
Changes to portfolios
We made small adjustments, adding more large-cap growth into the aggressive portfolios and broad market exposure through the S&P 500 to augment our sector focus. Finding one market leader has been a moving target, so a broad market index seems appropriate to add for now.
Treasure Valley Financial Planning is a dba of Clear Creek Financial Managment, LLC, a Registered Investment Advisor. This commentary reflects the personal opinions, viewpoints, and analyses of the Clear Creek Financial Management, LLC employees providing such comments, and should not be regarded as a description of advisory services provided by Clear Creek Financial Management, LLC or performance returns of any Clear Creek Financial Management, LLC Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this analysis constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Clear Creek Financial Management, LLC manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.