What the Secure Act would mean for you

Thursday, the House of Representatives passed the law entitled Secure Act, a bill backed by Republicans and Democrats that aims to improve the country's pension system.

When he passes the Senate, he will be sent to the office of President Trump. "The Trump administration has not yet adopted an official position on the bill, but the lobbyists who support it say they're waiting for the president to sign it." , Reported the Wall Street Journal.

The changes would be the most important for pension plans since 2006, when the Pension Protection Act facilitated the automatic insertion of employees into 401 (k) plans.

Here are some of the provisions of the Security Act:

• Repeal the maximum age of traditional contributions to the IRA, which is currently 70 years and a half.
• Increase the minimum age required for the distribution of retirement accounts to 72 (instead of 70 and a half years)
• Enabling long-term part-time workers to participate in 401 (k) plans
• Allow more pensions in 401 (k) plans
• Parents can withdraw up to $ 5,000 from retirement accounts without penalty in the year following the birth or adoption for eligible expenses
• Parents can withdraw up to $ 10,000 from 529 student loan repayment plans

"It's a stepping stone to addressing this looming retirement crisis," said Chad Parks, founder and CEO of Ubiquity Retirement + Savings, at Make It.

Many Americans are not prepared for their golden years: just 36% of non-retired adults think their retirement savings are on track, the Federal Reserve said in its annual study on household welfare. And 25% of Americans have no retirement or retirement savings.

Part of the problem is that many workers do not have access to 401 (k) plans, says Parks: "In fact, almost half of working Americans are not able to save for their retirement, mainly because small businesses are hesitant or intimidated by offering an IRA 401 (k) program or some kind of wage deduction program. "

One of the objectives of the Safety Act is to "encourage companies to [plans] in place, "says Parks.

This allows small businesses to group together more easily to offer 401 (k) packages.

"Companies that do not have anything in common could all join in the same plan," Amy Oullette, director of pension services at Betterment, told CNBC. This could potentially give small businesses access to cheaper plans with better investment options and lower administration costs.

By making the 401 (k) plans available to small businesses simpler and less expensive, if the bill goes into effect, "millions more people, by hypothesis, should be able to save at work," he said. Parks.

The bill would also allow more part-time workers to participate in the 401 (k) plans. Currently, employers can generally exclude people working less than 1,000 hours per year from their defined contribution plan. But with the new bill, "any employee who has been working for you for at least three years and at least 500 hours a year is now able to participate in your retirement plan," Parks said.

According to Parks, this is essential because investing in a 401 (k) is "the most effective way to encourage people to save for retirement".

This is a particularly effective way of saving for several reasons:

1. It offers significant tax benefits. Contributions are made before taxes, so the more you invest, the more you reduce your taxable income.
2. The money is automatically deducted from your paycheck before you can spend it. This makes it a simple way to save for the future. The idea is that over time, your money will increase and increase until you can start withdrawing it at 59 and a half. If you retire before this date, you usually have to pay a penalty.
3. Often companies offer a 401 (k) match, which basically consists of free money. Employers will match the contribution you paid to your 401 (k) up to a certain amount. For example, if you choose to place 4% of your salary in your account, your employer will add the same amount, doubling your contribution.

The Senate still has to pass the bill and the chair will then have to sign it. However, when it comes to changes to the pension system, "it's really the greatest thing we've seen in many years," said Oullette.

Do not miss: How much money do Americans have in their 401 (k) s at any age?

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