On March 29th, the House of Representatives voted 414-5 in favor of the “Securing a Strong Retirement Act of 2022” or as it is better known, SECURE Act 2.0. Next the bill will go to the Senate and if passed will expand on the SECURE Act passed in 2019.
The first major change the SECURE Act 2.0 would initiate is to increase the Required Minimum Distribution (RMD) age from 72 currently all the way to 75 over the course of a few years, specifically the age for RMDs would be as follows:
2022 – 73
2023 – 74
2024 – 75
This will have implications on Roth conversion, Social Security timing, and really all retirement income strategies as people approach these ages.
The second major change relates to employer sponsored retirement plans. Specifically, the bill would require 401(k) and 403(b) plans to automatically enroll their participants upon eligibility. The automatic enrollment would begin at a minimum of 3% of salary and cannot exceed 10%. This automatic enrollment would be followed by a 1% increase in participants savings rates until a ceiling of 10% was reached. As always, participants can opt out of the enrollment and certain businesses with less than 10 employees, church plans, and governmental plans will all be excluded from the requirements.
Another change the Bill would introduce specifically relates to Roth accounts. The proposed Bill would create additional opportunities for making Roth contributions by creating Roth Simple, and Roth SEP accounts which have previously not existed. Furthermore, the Bill would allow companies to make their matching contributions into Roth accounts for participants as well. Finally, the Bill would require that all “catch up” contributions be made to Roth accounts moving forward.
Lastly, SECURE Act 2.0 would allow participants in workplace sponsored retirement plans to receive an employer match on qualifying student loan payments for themselves or their dependents. Everyone has read how much of a problem student loan debt has become for the population and this item would give people a chance to pay down student loans and receive their employer match to their retirement plan at the same time. By making payments to qualified student loans (up to the $20,500 annual contribution limit) a participant can also earn their match in the plan. This one can be a bit confusing so let us walk through an example. Take Joe who works for ABC Co. (who provides a 100% match on the first 3% of salary) and earns $100,000/year. Currently Joe cannot afford to simultaneously contribute to his 401(k) and make payments to his student loans. Under the proposed Bill Joe could make $20,500 of payments towards his student loans and ABC Co. would contribute matching contributions to Joe’s 401(k) of $3,000!
SECURE Act 2.0 would certainly bring some welcome changes to the retirement landscape as it adds options and creates benefits for more people saving towards retirement. However, the Bill is not passed yet and there are almost always changes from the proposed legislation to the final product so we will be keeping an eye on how it develops and will provide updates on major changes.
If you have any questions about the proposed changes do not hesitate to reach out to us as we are always here to help!
Your Team at iNNOVA Wealth Partners
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