5 Proposed Changes to Retirement Savings Laws Under SECURE 2.0
5 Proposed Changes to Retirement Savings Laws Under SECURE 2.0
By: Stacey Nickens
You may have experienced changes to your retirement savings plan when the SECURE Act passed in 2019. Since then, lawmakers have continued to develop additional legislation with the hopes of making it easier to contribute to and withdraw from retirement savings accounts.
Recently, an act nicknamed SECURE 2.0 passed in the House of Representatives. This law is now headed to the Senate, and whether the law passes in its current version or in an edited version, there is significant bipartisan support for some kind of retirement savings legislation.
Until we know the final wording, you can review some of the retirement savings plan changes proposed by SECURE 2.0.
Increased Age for RMDs
With the passage of the original SECURE Act, retirees had to begin taking required minimum distributions (RMDs) at age 72. SECURE 2.0 would not require savers to begin taking RMDs until 75. The age for taking RMDs would be gradually increased, rising to age 73 in 2023, 74 in 2030, and 75 in 2033. SECURE 2.0 may require that retirees take larger RMDs if they delay their withdrawals.
Reduction to RMD Penalties
Retirees who miss an RMD are currently hit with a 50% tax. SECURE 2.0 would reduce the penalty to 25%, and if the mistake was corrected quickly, the penalty would be further reduced to 10%.
Auto-Enrollment in Workplace Retirement Plans
Under SECURE 2.0, employers would be required to automatically enroll their employees in their workplace’s 401(k) or 403(b) plan. Employees would automatically contribute 3% of their salary, unless they chose to opt out of the contributions or increase their contributions. Enrolled employees’ contributions would also automatically increase each year until the contributions reached 10% of the employees’ salary.
Some businesses would be exempt from this provision. Exempt businesses include smaller businesses, newer businesses, churches and government agencies, and businesses with retirement plans in place before SECURE 2.0 passed.
Incentivizing Retirement Savings
Aside from matching employee contributions, employers cannot currently provide workers with financial incentives for contributing to a retirement account. SECURE 2.0 allows employers to offer certain incentives, such as small gift cards, to encourage workers to save for retirement.
Increased Catch-Up Contributions
Older savers are allowed to make “catch-up” contributions to their retirement accounts. These are additional contributions beyond any plan limitations. SECURE 2.0 would increase these catch-up limits. 401(k) and 403(b) catch-up contributions would increase from $6,500 to $10,000 for workers between the ages of 62-64. SIMPLE IRA catch-up contributions would increase from $3,000 to $5,000 for workers in that age bracket.
Additionally, SECURE 2.0 would provide that IRA catch-up contribution limits for those 50 and older would increase with inflation, instead of remaining at a flat $1,000.
SECURE 2.0 has not yet become law, and it is likely that the legislation will be adjusted before passing. I will be monitoring the law’s progress, and I will provide updates when they become available.
