There will be fundamental changes to retirement legislation if the Senate passes the SECURE Act 2.0, which the House of Representatives overwhelmingly passed by a vote of 414 to 5 in March.
This bill expands on the Setting Every Community Up for Retirement Enhancement (SECURE) Act, which also had bipartisan support when former President Donald Trump signed it into law in December 2019. The bill is now in the Senate, where lawmakers are expected to attempt to incorporate provisions from other House and Senate bills. In its current form, the new bill proposes a slew of changes meant to help Americans save more for their retirement. Some of the key provisions include:
According to SECURE Act 2.0, any company that institutes a new retirement plan must automatically enroll any new employees as soon as they are eligible. Initially, the employee’s pretax contribution would be 3% of their paycheck, after which it would rise every year by 1% to a minimum of 10% but no greater than 15%.
Participants can choose a different contribution level or opt out altogether. The provisions would apply to any new 401(k) and 403(b) plans created after the legislation is enacted. Exceptions apply, though, for small businesses that have been operating for under three years or that have 10 or fewer employees, for church plans, and for government plans.
Increased Catch-Up Contributions
Starting in 2024, the SECURE Act 2.0 increases annual catch-up contributions to $10,000, indexed for inflation, for those between 62 and 64. However, limits would remain the same for 50-year-old participants, namely $6,500, indexed every year for inflation, up to a total contribution of $27,000.
Beginning in 2023, catch-up contributions to all employer-sponsored plans must be paid into Roth accounts, so taxes would have to be paid now.
Delayed Mandatory Distributions
Currently, employer-sponsored defined contribution plans and traditional individual retirement accounts require participants to start taking redundant minimum distributions at age 72. The new bill would gradually extend the age to 75 by 2033.
The Wall Street Journal points out that though this provision could help those who can afford to wait not to draw on their money, it might also lead them to pay higher taxes as they would be withdrawing more money every year due to the reduced time frame. However, delaying these required minimum distributions could incentivize more Roth conversions after retirement but before the distributions kick in.
Expanded Eligibility for Part-Time Workers
The previous Secure Act provided longterm part-time workers with the opportunity to contribute to their employer’s 401(k) plans. The new bill would reduce the time frame from 3 to 2 years, so part-time workers could start contributing sooner.