SECURE Act 2.0 Could Completely Change How You Save for Retirement
The House of Representatives has passed Bill H.R. 2954, the Securing a Strong Retirement Act, moving it one step closer to becoming a law, per CNBC. The bill, commonly known as the SECURE Act 2.0, passed with a bipartisan vote tally of 414 – 5 and is designed to help Americans save more for retirement.
Provisions of the plan include mandates for employers to help employees take advantage of 401(k) retirement programs with pre-tax dollars, help for student loan borrowers to save for retirement, changes to 401(k) contribution limits, and changes to the starting age for required minimum distributions (RMDs).
How can these changes aid in your retirement planning?
401(k) Requirements
The SECURE Act 2.0 mandates that employers which have been in business more than three years (and which have more than 11 workers on payroll) automatically enroll eligible employees in a 401(k) plan. Minimum contributions would start at 3% of the worker’s salary, and would increase until the employee is contributing 10% of their gross pay. Employees may opt out or change their contribution amounts at any time, and exceptions exist for church and government plans.
Considering that only 41% of American employees contribute to a 401(k) today — while 68% of workers have access to one, based on a U.S. Census Bureau report — this provision could help make 401(k)s more common in the workforce. The mandate could also educate people about the value of a retirement plan, and workers wouldn’t have to think about “opting in.”
Catch-up Contributions
For many Americans, it may seem too late to begin saving for retirement. The new law would give older Americans an opportunity to “catch up” on saving. People ranging from ages 62 to 64 could contribute $10,000 per year to their retirement account, up from $6,500 currently.
Required Minimum Distributions
If you opt to hold off on retirement, have other investments such as stocks and dividends to tap into, or prefer to live off your Social Security benefits instead of your 401(k) initially, you would have more time to keep certain investment funds in your accounts as a result of the SECURE Act 2.0 provisions.
Beginning in 2022, you could wait until age 73 to take the required minimum distribution. That age increases to 74 in 2029, and 75 in 2032 per the new legislation. The current age to take required minimum distributions for many retirement accounts, including IRAs and 401(k)s, is age 72, according to IRS.gov.
Help for Employees with Student Loan Debt
Under the legislation, employers could match student loan payments as retirement contributions to a 401(k). This could help graduates if heavy student loan debt prevents them from saving for retirement when they land a job after schooling.
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