What You Need to Know About SECURE 2.0
Published on May 5, 2022
On March 29th, the U.S. House of Representatives passed the Securing a Strong Retirement Act of 2022 (SSRA) by a 414-5 vote. Also known as “SECURE 2.0,” the bill includes over 50 retirement plan provisions—some of which could significantly affect taxpayers with retirement plans, and employers who offer workplace retirement plans. The U.S. Senate is expected to take up a similar bipartisan bill later this year.
By the end of the current decade, about 21% of the country’s population will be 65 or older,
according to forecasts by the U.S. Census Bureau. Most non-retired adults have some type of retirement savings, but only 36% think their savings are on track. Congress is aiming to bridge the retirement savings gap with many changes that should help.
Key SSRA/SECURE 2.0 Provisions
This legislation has extensive reach and provisions that affect employers and employees who participate in workplace retirement plans as well as those with IRAs. You can read the full list of provisions and details here, however, we highlight some of the objectives below:
Get more workers signed up. Employees would be automatically enrolled in 401(k), 403(b) and SIMPLE IRA retirement plans, however, they’d be able to opt out of coverage if they wish to do so. In addition, enrolled workers’ contribution rates will automatically increase each year by 1% until their contribution reaches 10% annually. Some exemptions and grandfathering guidelines apply.
Reduction in service period requirement for long-term, part-time workers. The current requirement is three years, however, the bill will drop the requirement down to two years. Typical current eligibility requirements allow employers to exclude workers with less than 1,000 hours of service in a year; this provision would require those with at least 500 hours of service in two consecutive years to become eligible to defer income into a 401(k) or 403(b) plan.
Delay the age for mandatory distributions. The required beginning date for taking required minimum distributions (RMDs) from retirement plans would be raised gradually from 72 (the new age implemented in the original SECURE Act) to 75.
Help locate old retirement plans. When workers switch jobs, they often leave behind old retirement plans. About $1.35 trillion are in “forgotten” 401(k) plans by more than 24 million participants, according to a recent study by Capitalize. This provision would create a national database to help reunite taxpayers with money that’s rightfully theirs. **Fun fact: did you know that money from old 401(k)’s can be rolled over into a self-directed retirement plan?
Make it easier to get an employer match. Typically, to get an employer matching contribution to your workplace retirement account, employees need to contribute via salary deferrals. Some people can’t afford to defer a portion of their salary because they’re paying off student loans. Under the new proposal, student loans repayments by the employee would count as elective salary deferrals, allowing the employer to make a match.
Increase “catch-up” amounts. The current 401(k) catch-up contribution limit would be increased from $6,500 to $10,000 for workers who are 62, 63 or 64 years old by the end of the taxable year.
More tax credits to encourage more small employers to offer plans. An enhanced retirement plan start-up tax credit of 100% for the first three years—as opposed to the current 50% of qualified start-up costs—would provide a bigger tax break for small employers (50 or fewer employees) who establish retirement plans for their workers. Another proposed credit represents a percentage of contributions small employers make to their qualified retirement plan (maximum of $1,000 per employee), for 401(k) and 403(b) plans, and SEP and SIMPLE IRAs.
Domestic abuse victims could make non-penalized withdrawals. They could withdraw the lesser of $10,000 or 50% of their account balance without being subject to the early distribution penalty tax. Participants could self-certify that they were victims of domestic abuse; the funds would need to be repaid to the plan over three years.
Extended period for discretionary amendments. Employers would now have until their business’s tax return due date, plus extensions, to adopt such amendments for the preceding year that increase benefits to participants (other than matching contributions). Individuals who wholly own an unincorporated business would have until their business’s tax return due date, without extensions, to make elective deferrals.
As with any legislation that affects one’s tax scenario, anyone with a retirement plan should read up on all the SSRA provisions. Discussing these proposed changes with your trusted advisor will help you prepare for updates that may affect your retirement savings strategy. If you have questions about your self-directed IRA, or wish to open a self-directed IRA to take more control over your retirement savings, contact Next Generation at NewAccounts@NextGenerationTrust.com or (888) 857-8058. Alternatively, you can register for a complimentary educational session with one of our knowledgeable representatives, or text them at (848) 233-4076.Back to Blog