SECURE Act 2.0: What You Need to Know If passed, this bill will alter the rules for contributing to and withdrawing from your retirement savings.
It seems like only yesterday the Setting Every Community Up for Retirement Enhancement Act (SECURE Act) was passed. Now, nearly two years later, a second bill, the Securing a Strong Retirement Act of 2021 (nicknamed SECURE Act 2.0), was just approved by the House Ways and Means Committee. This bill, if passed, will once again alter the rules for contributing to and withdrawing from your retirement savings.
What does this mean for you and your retirement savings? If SECURE Act 2.0 becomes law, here are five ways your retirement savings plan may be affected, and in a good way.
1. The Required Minimum Distribution (RMD) Age Will Change Once Again
The SECURE Act of 2019 increased the age at which RMDs from conventional IRAs and 401(k)s must begin from 70 1/2 to 72 years of age. The proposed law would raise the age to start taking RMDs once more, this time to 75 years old over a ten-year period. That means you’ll have a longer time to let your money grow tax-free, but you’ll have to make greater withdrawals if you postpone RMDs.
Furthermore, the bill would significantly lower the penalty for failing to make an RMD to 25% from the current 50%. And if you decide to remedy this oversight promptly, the IRS will lower the tax to just 10%.
2. Incentivized Retirement Savings
Under current law, employers are forbidden to give financial incentives to urge their employees to contribute to a 401(k) plan, with the exception of matching money. The proposed law would modify that by enabling businesses to give extra incentives, such as modest gift cards, to encourage employees to save for retirement.
3. Better Options for 403(b) Plans
Under current law, members in 403(b) plans can, for the most part, only invest in annuity contracts and mutual funds, restricting them from contributing to collective investment trusts. Under the proposed law, if certain conditions are met (the plan is subject to ERISA and the sponsor accepts fiduciary responsibility over available investments), SECURE Act 2.0 would allow 403(b) custodial accounts to invest in collective investment trusts.
4. Greater Access to Retirement Plans for Employees of Small Businesses
Small businesses may be eligible for several tax credits under the proposed law if they provide broader access to retirement plans for their employees. Such incentives include offsetting more plan start-up expenses, a three-year tax credit for joining a multi-employer plan, regardless of how long the plan has been in existence, and a tax credit for allowing military spouses to join their defined-contribution plans within two months of employment.
5. Ability to Make Larger Catch-Up Contributions
Today, workers 50 and older can make catch-up payments to their retirement accounts. Under the proposed legislation, workers between the ages of 62 and 64 would be able to make larger catch-up contributions. For those in this age group, they would be allowed to contribute an additional $10,000 (up from the existing $6,500) to their 401(k) and 403(b) plans. At the same time, SIMPLE IRA participants would be able to contribute an additional $5,000 (up from the current $3,000).
The proposed SECURE Act 2.0 encourages Americans to save more for retirement, in part by making the process easier. Given the bill’s strong bipartisan support and the original SECURE Act’s near-unanimous support, it’s highly likely to pass.
If you have questions about how SECURE Act 2.0 may affect your retirement planning or if you are interested in learning about other ways to increase your retirement savings, please contact us today.