How To Save For Retirement During The Biden Administration
Taylor Tepper - Forbes Staff
Going into the election, financial advisor Bryan Bibbo fielded countless calls from clients eager to know how their investments might fare depending on who won. He even put on a webinar to meet popular demand.
This interest in a president’s impact on the retirement savings stands in stark contrast to recent events that more immediately impacted many retirees. When President Donald Trump signed the SECURE Act into law at the end of December 2019, he changed how many retirees will treat their retirement funds during their golden years.
Retirees suddenly became able to defer mandatory minimum withdrawals from their tax-advantaged retirement accounts for an extra year and a half. They also gained the ability to keep contributing to their traditional individual retirement accounts (IRAs) for the rest of their lives, as long as they earn an income. Both of these may significantly affect how much money someone has in retirement. Yet Bibbo’s phone was conspicuously silent.
“No one had a clue as to what was going on,” says Bibbo, a lead advisor with the JL Smith Group in Avon, Ohio.
Despite lacking the same kind of publicity and intrigue as presidential elections, retirement policy is one of the few debates in Washington that garners bipartisan accord and has clear immediate implications for retirees.
A probable divided government means Biden’s more ambitious campaign legislation is probably on hold. But the laws that govern how you retire will still likely change, at least a bit. Your ability to take advantage of those changes may define your ability to enjoy a secure retirement.
How You Can Prepare for Retirement Under a Biden Administration
You shouldn’t wait for Congress to act to ramp up your retirement savings, though. If you’re already contributing to a retirement plan, keep putting money away as you have been. Presidential party rarely derails the overall stock market, so your best bet is to stay invested to position yourself for decades of compound returns.
If you’re looking for an easy place start, consider a Roth IRA. Unlike the employer-sponsored traditional 401(k), which delivers more tax savings the more you earn, the Roth IRA is perfectly suited to lower-income workers. You contribute with after-tax income and then the money grows and is withdrawn tax-free as long as you’re at least 59 ½ and first contributed to a Roth account at least five years before.
So if you’re a 25-year-old married couple with a household earnings of $80,000, you pay 12% income taxes on your contributions. The bet is that by the time you retire you’ll have higher household income, but your Roth IRA withdrawals won’t be subject to taxes at that point.
“It’s the best savings tool that exists,” says Alex Reffett co-founder of East Paces Group. “You literally never pay taxes on growth.”
Roth IRA savers might also take advantage of the Saver’s Credit. Unfortunately, just 38% of American workers know the credit exists, according to a recent survey by the Transamerica Center for Retirement Studies (TCRS), and only 25% of those eligible to take the credit do so, according to the National Institute on Retirement Security.
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