The pending legislation for the proposed retirement reform, better known as the Setting Every Community Up for Retirement Enhancement (SECURE) Act 2.0, is expected to be passed into law by the end of 2022. In March of this year, the United States House of Representatives passed the Securing a Strong Retirement Act of 2022. Then in June, two Senate bills were approved; The Enhancing American Retirement Now (EARN) Act and the Retirement Improvement and Savings Enhancement to Supplement Healthy Investments for the Nest Egg (RISE & SHINE) Act. [i] These three bills make up the SECURE Act 2.0. The purpose of the amendments to the SECURE Act of 2019 is to make it so that a larger percentage of the population has the potential to save even more money when it comes time for retirement. Here is how you can learn more about 2.0 and plan for a confident rollout.
Key provisions of the SECURE ACT 2.0
Enhancement of Retirement Plans
- Automatic enrollment in retirement plans
This new version would require employer-sponsored retirement plans to automatically enroll new employees at a three percent contribution rate that would increase by one percent yearly until it reaches ten percent. Church and government plans and companies that are less than three years old or employ ten or fewer people would be exempt.
- Access for long-term and part-time workers
The length of the yearly service requirement for part-time workers to be eligible for participation in employer-sponsored retirement plans is lower.
- Raising of the required minimum distribution (RMD) age
The age at which an individual will have RMDs increased from 72 to 73 by 2022, 74 by 2029, and to 75 by 2032. [ii]
- Locating missing retirement accounts and early distributions without penalization
There will be the formation of a national database for people to locate lost retirement accounts and allow specified 401(k) and individual retirement account (IRA) owners to withdraw funds without facing a ten percent early distribution penalty.
Potential to save you money
- Catch-up contribution limit increase
People aged 62 to 64 will be able to contribute an additional $10,000 to their 401(k) or 403(b) plans, or an additional $5,000 to a SIMPLE IRA. Catch-up contributions for these plans are currently $6,500 and $3,000 for savers 50 and over. The caveat is that beginning in 2023, and these catch-up contributions would be taxed as Roth contributions (they would be subject to income tax before being invested). [iii]
- Student loan payments eligible for matching contributions
Employees who are making payments on their student loans (but not contributing to their retirement plans) will be able to get employer-matching contributions. This contribution would match the student loan payment amount up to a certain percentage of the employee’s salary. [iv]
- Promotes the Saver’s Credit
This provision is intended for low- to medium-income households allowing for more tax deductions as lower earners save for retirement. It also increases the number of people who qualify and sets the credit at 50 percent, as opposed to having it decline as you earn more. [v]
Reduction in Costs for Employers
- Small business startup tax credit
The three-year credit is currently possible for 50% of “qualified startup costs” for employers with no more than 100 employees. The three-year credit allows eligible employers to claim a tax credit of up to $5,000, for three years, for the ordinary and necessary costs of starting a simplified employee plan (SEP), SIMPLE IRA, or qualified plan, for example, a 401(k). (A tax credit reduces the amount of taxes you may owe on a dollar-for-dollar basis). [vi]
- Extended treatment to 403(b) plans
The bill has lowered costs and eased up regulations so small businesses would be encouraged to join up and adopt multiple employer plans (MEP). A multiple-employer plan is a plan maintained by two or more employers who are not related. [vii]
Understanding how the provisions of the SECURE Act 2.0 can benefit you can help you develop a strategy to plan for the future and your retirement. Consider discussing your retirement goals with a financial professional who can help you determine how to begin navigating the provisions and determining what might be appropriate for you and your family.
Important Disclosures
This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.
All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
This article was prepared by LPL Marketing Solutions
Footnotes:
[i]052622 Retirement Bill_Section-by-Section Summary.pdf (senate.gov)
[ii]Required IRA, 401(k) withdrawals start at age 75 under Congress bill (cnbc.com)
[iii]Congress considers retirement rule changes, including catch-up contributions (cnbc.com)
[iv]SECURE 2.0 Definition (investopedia.com)
[v]What Is Secure Act 2.0? How Would It Change Retirement? – Forbes Advisor
[vi]Retirement Plans Startup Costs Tax Credit | Internal Revenue Service (irs.gov)
[vii]Multiple Employer Plans | Internal Revenue Service (irs.gov)
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