What Retirement Savers Can Expect from the Secure Act 2.0
The House Ways and Means Committee recently passed the SECURE Act 2.0—a follow-up to the popular SECURE Act passed in 2019. While it has a way to go before it becomes law, the SECURE Act 2.0 has several tantalizing provisions designed to help Americans plan for a financially secure retirement. Here’s what you need to know about the proposed bill.
In 2019, Congress passed the Setting Every Community Up for Retirement Enhancement Act of 2019, also known as the SECURE Act. Among other things, it removed the age limit for making IRA contributions (previously 70½) and increased the age requirement for making required minimum distribution—two measures to help retirement savers and retirees get more out of their retirement plans.
The Secure Act 2.0
In May 2020, the House Ways and Means Committee passed the SECURE Act 2.0—the Securing a Strong Retirement Act of 2021. The bill still must go to the full House for a vote before it’s passed on to the Senate for a vote, so it has a way to go before it becomes law. However, it has received strong bipartisan support, which makes it likely to become law, though some of the provisions could be changed or omitted in the process.
Regardless, if passed into law, the bill would significantly impact how we plan for retirement—in a positive way. In addition to expanding coverage and increasing retirement savings, the SECURE Act would allow employers to make a matching contribution to employee’s retirement account based on the amount of their student loan payment. Here are some of the key provisions you should know about:
Increases age for making Required Minimum Distributions (RMDs)
Just as it did in the first SECURE Act, the SECURE Act 2.0 increases the age at which retirees must begin minimum withdrawals from their IRA or 401(k). The SECURE Act increased the RMD age from 70½ to 72. The SECURE Act 2.0 would increase it to 75 (phased in over ten years). That takes tremendous pressure off retirees who would prefer to keep their money working for them.
Indexes IRA catch-up limit
Currently, individuals aged 50 and over may increase their annual IRA contributions by $1,000 over the contribution limit. The SECURE Act 2.0 would index the catch-up contribution limit starting in 2023, allowing it to increase each year.
Higher retirement plan catch-up limits from age 62 to 64
Currently, retirement plan participants aged 50 and older may make a catch-up contribution to their retirement plan up to $6,500, or $3,000 for a SIMPLE plan. The SECURE Act 2.0 would increase the catch-up limit to $10,000 and $5,000, respectively, for individuals aged 62, 63, and 64. The new catch-up limits will be indexed.
Employer matching of student loan payments
Recognizing that employees saddled with student loan debt are often unable to save for retirement, the SECURE Act 2.0 would allow employers to make a matching contribution for 401(k), 403(b), and SIMPLE plans based on the amount of an employee’s qualified student loan payment.
The proposed bill also includes other provisions to enhance employers’ ability to offer retirement plans to a broader swath of the working population. Among other things, the bill would boost the credit given to small employers that want to start a pension plan. It would also expand auto-enrollment in retirement plans, allowing employees to opt out.
The SECURE Act 2.0 introduces some significant enhancements to individuals’ ability to plan for a secure retirement. While Congress may modify some of the proposed provisions during the legislative process, the bill enjoys broad bipartisan support, which is good news for retirement savers.
Read other situation analysis articles