The Setting Every Community Up for Retirement Enhancement (SECURE) Act, which passed in late 2019, was only the start of changes for the retirement industry. A bipartisan bill, which has been nicknamed “SECURE Act 2.0,” is in the works.
The bill is designed to make it easier for workers to save for retirement, targeting both those just starting out and those nearing retirement. The bill also includes a provision that would benefit small business owners who offer retirement plans.
Here are some key provisions in the bill:
Higher limits on catch-up contributions
The bill would increase catch-up limits for individuals nearing retirement age. The new limit for 401(k) and 403(b) plans would be $10,000 (up from $6,500). For SIMPLE IRAs, the limit increases to $5,000 (up from $3,000).
Raising the age for RMDs
Currently, if you’re at least age 72 you must take required minimum distributions (RMDs) from your retirement accounts or be subject to an excess accumulation penalty. Under the new bill, the starting age for RMDs would increase to 75, and the penalties would be reduced.
Relaxing RMD rules
Individuals with retirement account balances of less than $100,000 at age 75 would have RMD exemptions.
Increasing QCDs
The bill would increase the annual limit on qualified charitable distributions (QCDs) from $100,000 to $130,000. A QCD is a direct transfer of funds from your IRA to a qualified nonprofit. QCDs count toward RMDs, so if you don’t need that money, you can avoid paying taxes on it by giving it to charity.
Student loan help
The bill would allow people with student loans to make payments on those loans in lieu of contributions to their workplace retirement plans and still receive their employer match. That helps people to pay down debt and save for retirement at the same time.
Adjusting the saver’s credit
The saver’s credit was designed to encourage low- and moderate-income workers to save for retirement. Depending on income, eligible taxpayers can currently receive a tax credit of 10% to 50% of their IRA and salary deferrals, capped at $1,000. The new bill simplifies the program with a flat rate of 50% credit and increases the cap to $1,500.
Mandatory automatic enrollment
Right now, employers can include an automatic enrollment feature on their retirement plans. This allows a portion of the employee’s salary to be automatically withheld and contributed to their retirement savings. An employee who doesn’t wish to participate can opt out.
Under the new bill, automatic enrollment would be mandatory for 401(k), 403(b), and SIMPLE IRA plans. Employers would be required to enroll eligible employees at a minimum of 3% to a max of 10% salary deferral. Studies show that plans with auto enrollment have higher participation rates.
Small business tax credits
The bill would offer small businesses with 100 employees or less a tax credit to offset up to $1,000 in employer retirement contributions per employee. The credit would phase out over five years.
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