"The retirement crisis in America is real, and will only get worse without easier pathways to saving and encouraging workers to start planning for retirement earlier in life." "This legislation expands automatic enrollment, simplifies many retirement plan rules, and strengthens small businesses’ ability to offer workplace retirement plans, to make it easier for Americans to plan for their golden years."

Joint statement by Ways and Means Committee Chairman Richard Neal, D-Mass, and Rep. Kevin Brady, R-Tex., the committee's ranking Republican

The Securing a Strong Retirement Act of 2021

Back in May 2021, the House Ways and Means Committee unanimously passed a new round of retirement legislation with bi-partisan support as a follow up from the SECURE Act passed in 2019. It’s expected that this legislation will be referred to as SECURE Act 2.0 with hopes of it being put into law before year-end. This is not to be confused with the “American Families Plan” which is still in the Ways and Means committee and promises tax hikes to high earners and corporations. Read on to learn about major provisions within SECURE Act 2.0.

Retirement plans get a new set of rules

  • Employers establishing defined contribution plans after 2021 are to automatically enroll new employees, when eligible, in the plan at a pretax contribution level of 3% of the employee’s pay. This level would increase annually by 1% up to 10-15% of the employee’s pay, but allows the employee to make adjustments as they see fit. Effectively, it makes something like a 401(k) plan an opt-out decision rather than an opt-in.  
  • Employers will also be able to make “matching” retirement plan contributions based on student loan repayments rather than employee participation. This will allow those faced with prioritizing student loans payments over retirement savings a way to secure the match benefit.
  • Catch-up contributions for IRAs would become indexed for inflation (right now it’s been the same $1,000 since 2006). 
  • Catch-up contributions for employer retirement plans get an ‘extra’ catch-up contribution  for those aged 62-64 ($6,500 to $10,000 in 401(k) plans and from $3,000 to $5,000 for SIMPLE IRAs). However, catch-up contributions would now be required to be given Roth treatment. Right now it’s optional. This sounds like a bit of a tax headache to have a big uptick of retirement accounts contain a mix of pre-tax and Roth contributions for a relatively small contribution enhancement, but let’s hope tax reporting for these accounts accomodate this requirement. 
  • If you’re nostalgic for pensions, the SECURE Act allows for variable insurance contracts within retirement plans. Investing in these would feel akin to receiving a pension or annuity payout in retirement, rather than drawing down from a balance. The downside is they’ve been criticized for having high fees, among other things. 2.0 has made provisions making access more flexible and to allow ETFs (which are typically lower in cost) to be offered.
  • Have you heard of FindMassMoney.com? Potentially because of its success with reuniting account owners and beneficiaries with lost accounts, a new “Office of Retirement Savings Lost and Found” will be formed to help retirement plan participants track down lost retirement accounts.

Required Minimum Distributions

  • Required minimum distributions (RMDs) are waived for those with less than $100,000 in pre-tax retirement savings. For those with higher cumulative balances, the age is being pushed back to allow more time for account values to grow tax-deferred. The SECURE Act had made an adjustment from age 70.5 to 72. This time it would be 75 and implemented gradually over the next decade…
    • age 73 starting in 2022 // age 74 starting in 2028 // age 75 starting in 2030
  • A change to the excessive (in my opinion) 50% penalty for missed/late RMDs. Missed or late RMDs are common in the first year they’re required for a senior or beneficiary. It’s an unintentional and correctable mistake, making this provision a welcomed relief. And while you can ask for an exception, it’s stressful to realize you forgot taking your RMD and HALF of it was taken in penalty. Under SECURE Act 2.0, the penalty for a missed RMD would be reduced from 50% to 25%, and for a late (but timely corrected) distribution down to 10%. 

Qualified Charitable Contributions

  • Qualified Charitable Contributions (QCD) proved to be a very popular option for charitably inclined IRA account owners aged 70.5+, which allowed them to directly gift RMD amounts and beyond (up to $100k) to charities while avoiding recognizing the taxable income. The SECURE ACT 2.0 would index the $100,000 annual limit for inflation, and allow a once-in-a-lifetime QCD of up to $50,000 to a split-interest entity (such as a charitable gift annuity (if solely funded by the QCD). 

Now we wait to see what the Senate Ways and Means committee produces. How the House and Senate versions are reconciled. And if it’s ultimately signed into law by the president. Fingers crossed we end up with something that adds flexibility and expands limits for retirement savers without overly complicating our experience with the IRS!