The Securing a Strong Retirement Act of 2022 has overwhelmingly passed the House of Representatives, and will move on for consideration in the Senate. There is likely to be strong bi-partisan support for the bill--as there was in the House. Last summer we wrote a brief summary of how the SECURE Act 2.0 (this bill's nickname) is likely to impact retirement planning into the future. Please find our summary of the major changes to retirement in this bill below:
"2020 ushered in the first major changes to retirement plan legislation in some time. The SECURE Act was a bi-partisan piece of legislation that made many changes to the retirement system, but will be remembered by most as the law that changed Required Distribution age to 72. In fact the act does much more, with perhaps the largest impact being the treatment of inherited retirement accounts.
Now the Securing a Strong Retirement Act is poised to move forward in the coming months with nearly similar bi-partisan support. The Act has been dubbed by many as SECURE Act 2.0, and could have just as far-reaching impact to financial plans as the original. As the bill progresses, and if it eventually becomes law, please know that we will update you on the end result and discuss with you how it may impact your plan. In the interim, I am including the highlights of the proposals below.
Changes to Required Minimum Distributions (Again!)
Let’s begin with RMDs, because they basically impact all non-Roth IRA retirement account owners. RMDs GRADUALLY get pushed back from 72 (current) to 75. That means you could have more time for your money to grow tax free but if you delay RMDs, your withdrawals may need to be larger.
RMDs would start at:
• 73 if you turn 72 from 2023–2027
• 74 if you turn 72 in 2028–2039
• 75 if you turn 72 in 2030 or later
Currently, retirement savers age 50 and over are allowed additional plan contributions called "catch-up contributions." The proposed legislation would FINALLY index IRA catch-up contributions for inflation.
Presently, the plan salary deferral, plan catch-up contribution, and plan overall limits for employer-sponsored plans are ALL indexed for inflation…but not the IRA catch-up contribution limit. It has to be increased by legislation, and that’s only happened one time--for 2006!
The proposal also creates new plan catch-up contribution limits in years a participant turns 62, 63 + 64. Such (62–64) participants would have following catch-up contribution limits beginning in 2023:
• 401(k)s and similar plans: $10k ($6.5k today)
• SIMPLE: $5k ($3k today)
Interestingly, these increased amounts go away from age 65+.
Part of the proposed changes to catch-up contributions include that ALL must be made to Roth Accounts. This could prove a challenge to land in the final bill as many employer-sponsored plans do not yet have Roth accounts available.
SEP and SIMPLE Roth accounts
SECURE Act 2.0 would create SEP and SIMPLE Roth accounts, and would allow individuals to designate employer matching contributions to the Roth side. As for SEP or matching contributions, these would likely get added to the W-2 in some fashion.
Some significant changes to Qualified Charitable Distributions could also be on the way including indexing the $100k limit for inflation, and possibly allowing the use of charitable trusts in some cases.
Qualified Student Loan Payments
Employers would be able to make “matching contributions” to a 401(k), 403(b), or SIMPLE IRA to the extent the participant made what would technically be known as a “Qualified Student Loan Payment.”
While this review of some of the possible planned provisions in Secure Act 2.0 certainly isn't exhaustive, we wanted to highlight the most pertinent pieces to clients in our practice. Trust that as the final version of the legislation becomes law, we will communicate with you directly about any possible adjustments needed in your plan. Please let us know if you have current questions or concerns."