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Preparing for Retirement: The Family Savings Act


  • If it becomes law, the Family Savings Act (FSA) will bring many changes to retirement planning

  • Small businesses can join more multiple-employer plans and certain people won't need to take required minimum distributions



  • 401(k)s can be used for expenses pertaining to an individual's children

Posted by December 26, 2018

When preparing for retirement, it’s a good idea to learn everything you can about the Family Savings Act (FSA). The House approved the legislation in September and a related act currently has a great deal of support in the Senate.

If the FSA becomes law, it will change some aspects of retirement planning for businesses and individuals. So, it’s a good idea for organizations and employees to start understanding the regulations now. Here’s a quick primer to help you and your colleagues get started.

First, What Is the Family Savings Act?

The Family Savings Act (H.R. 6757) is intended to help individuals boost their retirement savings. It was introduced in response to an executive order seeking to revise retirement regulations that were deemed too burdensome. The FSA will make changes to small business retirement planning rules, giving businesses and individuals more options for the future.

Small Businesses Could Have More Multiple-Employer Plan Options

The FSA would allow small businesses in different industries to partner together in order to offer retirement plans that are less expensive (and less difficult) to administer. Right now, small businesses typically offer single-employer plans. But the FSA would give small businesses greater opportunities to join what’s known as multiple-employer plans (MEPs).

Currently, only closed MEPs exist—which require employers to share a trade or a geographic region. The FSA would allow non-related small businesses to join MEPs, providing retirement plan options closer to those enjoyed at larger companies.

Rules Around Required Minimum Distributions Could Change

The FSA would free some employees from being forced to take required minimum distributions (RMDs) from qualified retirement plans, as long as their combined accounts don’t exceed $50,000. This includes 401(k)s and IRAs. The FSA would also reduce the RMDs for larger account holders, which would allow retirees to spread out their retirement plans so they last longer and avoid compliance issues.

The RMD is the minimum amount you must withdraw from a retirement account each year. It kicks in right at age 70 1/2, regardless of retirement status, for IRA plans (or if the individual is a 5 percent owner of a business sponsoring the plan). The new rules would waive this automatic requirement for individuals age 70 1/2 or older who have $50,000 or less in all their plans.

The FSA Would Help People Before Retirement

The FSA would also help people who need to access retirement funds early. For example, families will be able to access funds in their 401(k)s for new child expenses without incurring the penalties that they would currently be subject to.

The new act will also make 401(k)s and similar plans more portable. Employees with these plans could transfer them tax-free to an IRA, and avoid other expenses.

Additionally, the FSA would expand how Section 529 education accounts can be used. Qualified expenses include room and board, tuition and mandatory fees at any college or university. The FSA would expand this to cover costs associated with learning a trade, paying off student debt and homeschooling.

Universal Savings Accounts Could Be Used Any Time

Another new option for retirement planning would be universal savings accounts. Employees could annually contribute $2,500 of after-tax money into a Roth-style savings account, which can grow without being taxed. They could later withdraw the money tax-free for any need, not just retirement.

So, How Can You & Your Colleagues Take Advantage of the FSA?

It’s best to familiarize yourself with the FSA now, so you’ll be ahead of the curve if it becomes law. If it does, the first thing you might want to do is look into multiple-employer plan options that weren’t previously available to you. Next, let your fellow employees know about the new ways they can use their retirement funds and Section 529 accounts. You would also want to let them know about universal savings accounts!

When preparing for retirement, it’s wise to keep a close eye on changes to the law. Not only could the passing of the FSA help retirees take fewer required distributions, it could provide more options for businesses and individuals. Consider talking to your organization’s accountant about staying updated on the FSA’s progress.

Curious to learn about different benefits packages your company could take advantage of? Check out United Concordia Dental’s website to explore the available offerings.

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