New Retirement-Savings Law Likely to Help 401(k) Plans, but Not IRAs. Here's Why.
A hefty piece of federal legislation passed by Congress and signed into law by President Trump in December has been hailed as one of the most far-reaching retirement savings reforms in at least a decade – a package that will broaden the reach of workplace 401(k) plans.
While the legislation makes several important tweaks to Individual Retirement Accounts, too, it’s not likely to enhance their popularity all that much.
Granted, IRAs already are popular, accounting for $9.7 trillion, or 33%, of all retirement assets as of a mid-2019 tally by the Investment Company Institute, a mutual fund trade group.
But relatively few people contribute new money into IRAs, including Roth IRAs, which allow for tax-free withdrawals. The growth of IRAs has been fueled by their role as repositories for money pulled out of workplace 401(k)-style retirement plans.
That is, when people leave an employer, they typically have the option to transfer the money into an IRA rather than leave it in the 401(k) account. Rollovers provide a number of benefits: They preserve the tax-deferred status of the account, open up new investment options and allow investors to consolidate their accounts. None of that will change with passage of the SECURE Act.
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