Investing in your future by preparing and saving for retirement as early as possible is a crucial part of financial planning. Many of you already have access to an employer-sponsored 401(k) plan. If you’re already participating in your employer’s retirement plan, you’re on the right track!
I’m here to tell you that you might soon have more flexibility and more financial options when it comes to retirement. There’s a new bill in Congress that has passed the House of Representatives and it’s called The Securing a Strong Retirement Act of 2022, or Secure Act 2.0 for short. Let’s talk about what this act is, why it matters, and what it means for your financial future.
What is Secure Act 2.0?
Secure Act 2.0 is a new bipartisan retirement security bill that was passed on March 29th, 2022 with an overwhelming majority 414 – 5 vote.
The bill was originally introduced by the Ways and Means Committee by Chairman Richard Neal (D-Massachusetts) and Kevin Brady (R-Texas). This bill builds upon and is an addendum to The Setting Every Community Up For Retirement Enhancement Act of 2019, or the Secure Act for short, which was signed into law on December 12th, 2019. Take a look at this tweet from Ways and Means Committee below:
🎉 HOUSE PASSES SECURE 2.0 🎉
Today, the House passed the Securing a Strong Retirement Act!
— Ways & Means Committee (@WaysMeansCmte) March 29, 2022
Now, let’s take a look at the key provisions of this bill.
What Are The Key Provisions of the Secure Act 2.0?
These are the most important elements of the Secure Act 2.0 which are sure to affect your wallet:
- Automatic Enrollment in Retirement Plans: This is the most important provision of the bill; employers would be required to enroll eligible employees in 401(k) plans at a rate of 3% of their salary, which would increase annually until the employee is contributing 10% of their salary. Employees would have the choice to opt out after the fact and small businesses, defined as businesses with 10 employees or fewer or that are less than 3 years old would, be excluded from the mandate.
- Increase in Required Minimum Distribution Age Start Date: The starting age for required minimum distributions (the minimum amounts you must withdraw from your retirement accounts by a certain age) would increase to age 73 in 2022, age 74 in 2029, and age 75 by 2032, up from the current age of 72. This enhancement gives retirees more time and flexibility to allow their assets to grow before having to cash out and withdraw money.
- Enhancements to Catch-Up Provisions: While catch-up contributions (extra 401(k) contributions as you near retirement age) for those age 50 will remain the same, individuals aged 62-64 could make catch-up contributions each year of up to $10,000, up from the current $6,500.
- Online “Lost and Found” for Long-Forgotten Pension Benefits: A national database would be created for anyone to search for lost or forgotten retirement accounts and pension plans, so that people may reclaim what’s theirs!
- Elect For Employer 401(k) Match as a ROTH 401(k) Match: Employees would be able to elect for their employer’s 401(k) match to apply as a ROTH 401(k) match. The difference? Currently, the existing system only allows for employer matches as 401(k) matches, which is pre-tax money. So, when you reach retirement age, you’ll have to pay taxes on your accrued match. With this change, employees would be able to elect for ROTH 401(k) matches, which is already taxed money. This way, you won’t pay a penny in taxes when you start to withdraw your retirement funds later in life.
- Employers Can Match Student Loan Payments as Contributions to Retirement: Instead of matching an employee’s retirement contribution, employers would be able to match an employee’s student loan payments, if they would prefer. This opens the door for a new way to pay down student loans faster (oh yea!).
The Bottom Line
Now that the Secure 2.0 act has passed the House of Representatives, the legislation will be sent to the Senate for possible action in April 2022. Considering the bill’s strong bipartisan support in the House and the fact that the original Secure Act was signed into law, it’s highly likely that Secure Act 2.0 will become law too.