Secure Act 2.0 Calls for Bumping Up Age for Required Minimum Distributions, Among Other Proposals
Politicians across the aisle don’t agree on much, but the House recently passed bipartisan legislation that could dramatically change how Americans save for retirement. Keeping in mind that the final bill could look different after the Senate weighs in with its own bill, here’s a quick summary of some of the key House proposals:
Q: What Changes Are Proposed for Required Minimum Distributions (RMDs)?
A: While Secure Act 1.0 changed the age at which you must take an RMD from a retirement plan, such as a 401(k), from age 70½ to age 72, the House proposes a phased-in increase1 in that age requirement. This would be beneficial for wealthy retirees—the additional three years would primarily give those who don’t rely on RMDs for income more time to avoid tax liabilities.
- 73 starting in 2023 (for individuals who reach age 72 after Dec. 31, 2022, and age 73 before Jan. 1, 2030)
- 74 starting in 2030 (for individuals who reach age 73 after Dec. 31, 2029, and age 74 before Jan. 1, 2033)
- 75 starting in 2033 (for individuals who reach age 74 after Dec. 31, 2032)
Q: Are Catch-up Contributions for 401(k) Plans Changing?
A: Yes. Until now, up to $6,500 in catch-up contributions to a 401(k) have been allowed for those age 50 or older.2 The new proposal keeps the current catch-up levels for those ages 51-61 but increases the annual catch-up amount to $10,000 for participants ages 62 through 64 starting in 2024.
Q: What’s Changing for Catch-up Contributions to IRAs?
A: Currently, individuals can contribute $1,000 in catch-up contributions to an IRA. Under the new legislation, that limit will be indexed for inflation beginning in 2023.
Q: How Would the Legislation Help Workers Carrying Student Loan Debt?
A: The legislation would officially authorize employers to make matching contributions equal to a student’s loan repayment, even when employees aren’t making retirement plan contributions. This allows individuals to pay off their loans without sacrificing saving for retirement.
Q: Will Employers Have to Enroll New Employees in Their Retirement Plan?
A: Yes. They will have to set up a defined contribution plan such as a 401(k) if they don’t already have one and automatically enroll new employees at a 3% pre-tax contribution rate. That percentage would increase 1% annually and go up to at least 10% but no more than 15% total.3
Small businesses with fewer than 10 employees are exempt from this rule. Of course, employees would be able to choose to elect a different contribution amount.
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