What it could mean for your retirement plans
The Securing a Strong Retirement Act, H.R. 2954, also called the Secure Act 2.0, was approved by the House of Representatives last Tuesday with a bipartisan vote of 414-5. Now, the legislation heads to the Senate.
The bill aims at simplifying the process of saving for retirement by expanding opportunities for both older and younger workers.
Raises the age at which seniors must take required minimum distributions (RMDs) from their retirement savings accounts to 73 from 72
Effective Jan. 1, 2023 the required age of withdraw will increase, allowing your retirement funds to accrue for another year. Additional increases in the age requirement are planned for subsequent years.
Increases the limits on catch-up contributions for employees ages 62 to 64 to $10,000, beginning in 2024 and will be indexed to inflation
A catch-up contribution allows those 50 and older to make additional contributions beyond the standard contribution limit to 401(k) accounts and individual retirement accounts (IRAs). Catch-up contributions allow those nearing retirement to “catch up” for the early years of their careers when they likely were not contributing much to their accounts. Presumably later in their careers, when salaries have increased, they can use this to compensate on underutilized employer contributions.
Expands automatic enrollment of workers in employer-sponsored retirement saving plans
Beginning in 2024, employees would be enrolled automatically in a company’s retirement plan, unless they opt out. Initially, automatic contributions would be between 3-10% of pretax earnings, and that amount would be increased by 1% each year until reaching 10%. Those exempt from this include current 401(k) enrollees, small businesses with fewer than 10 employees; businesses established less than three years ago; and government and church plans.
Allows companies to match student loan payments for younger employees
Many find it challenging to invest in their retirement because of the immediate need of paying off student loan debt. The bill will allow employers to match a student loan payment equivalent to the contribution of that employee’s plan, effective Jan. 1, 2023
Increases the annual Saver’s Credit for low- and middle-income American workers
This tax credit of up to $1,000 annually will incentivize greater participation from those who cannot afford to fully participate in their retirement plans. Survivors of domestic abuse and small business owners will also receive tax credit.
Creates a database of lost retirement accounts
Employees and retirees can use the online database to find old accounts, including those from past employers.
Law makers hope the bill will expand both early and later participation in retirement savings programs. The bill now goes to the Senate and is expected to be reviewed in the coming weeks.
If you have any questions about the bill or how this impacts your own plans, please reach out to us and be sure to check the blog for updates on the bills progress!
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