Back in 2019, the Congress passed Setting Every Community Up for Retirement Enhancement Act (or SECURE Act), which changed a number of rules surrounding IRAs and employer-sponsored retirement plans such as 401(k)s.
A follow-up bill called Securing a Strong Retirement Act of 2020 (or SECURE 2.0) was introduced in October of 2020. Though the billed moved slowly through Congress, it was passed by on March 29, 2022 by a vote of 414-5.
Here are some of the changes that would be enacted if Secure 2.0 is passed by the Senate and signed by President Biden:
1. The age at which Required Minimum Distributions would begin would increase further
The Secure Act raised the RMD starting age from 70 ½ to 72. Under Secure 2.0, the RMD starting age would increase three more times on a staggered schedule:
- Age 73 starting on January 1, 2023 for people who reach age 72 after December 31, 2022 and age 73 before January 1, 2030.
- Age 74 starting on January 1, 2030 for people who reach age 73 after December 31, 2029 and age 74 before January 1, 2033.
- Age 75 starting on January 1, 2033 for people who reach age 74 after December 31, 2032.
2. IRA catch-up contribution limits would be increased
Beginning on January 1, 2024, the current $1,000 catch-up contribution for IRA holders over age 50 would be indexed for inflation.
For those with employer-sponsored retirement plans, the current catch-up contribution of $6,500 ($3,000 in SIMPLE plans) would be bumped to $10,000 (or $5,000 for SIMPLEs) for workers who have reached age 62 through 64, but not age 65. These contribution limits would also be indexed for inflation as well.
3. All catch-up contributions would be allowed on either a pretax or a Roth basis
Right now, if you have an employer-sponsored qualified retirement plan, your employer gets to decide whether catch-up contributions may be made on either a pretax or a Roth basis. If your employer doesn’t allow catch-up contributions to be done as Roth contributions, you’re out of luck.
However, if SECURE Act 2.0 passes, all catch-up contributions to qualified retirement plans may be made on a pretax or Roth basis, beginning with tax year January 1, 2024.
4. Employer match money may be made on a Roth basis
Currently, employers aren’t allowed to make their matching contributions to qualified plans on a Roth basis. SECURE 2.0 will change that, allowing plan participants the option to receive their employer match as Roth contributions.
The bill is expected to be voted on by the Senate sometime this month, and we’ll report back on further activity.
In the meantime, is your retirement strategy on track? Find out by scheduling a free, no-obligation meeting with one of our advisors by clicking here.
Alli Thomas has worked in the financial services industry for nearly 20 years, with a focus on retirement-related investing. She began her career as a FINRA-licensed participant-services call-center associate at Vanguard, and then moved to Principal Financial Group, where she worked closely with employers, assisting with retirement plan set-up and design, selecting appropriate plan investment offerings, and maximizing employee participation through targeted education campaigns and enrollment meetings. Alli has also worked as a qualified 401(k)administrator and registered investment advisor for several small investment firms. She now writes about all things investment- and finance-related, leveraging her extensive experience and passion for retirement planning to help investors make well-informed financial decisions.