A few weeks ago, the U.S. House of Representatives overwhelmingly passed (with a vote of 414-5) the “Securing a Strong Retirement Act of 2022” (also known as the SECURE Act 2.0). Although the Senate is supposed to take up a version of its own bill soon, and this is not law yet, we do expect some version of this bill to be passed by year-end.
At 139 pages in length, you have many more exciting things to do with your time. So we thought we’d emphasize the six most relevant changes that would impact most clients:
One: Pushing back the starting age for Required Minimum Distributions (RMDs) again
The age to begin taking RMDs was initially changed from 701/2 to 72 in 2019 with the passage of the original SECURE Act. This bill would increase the age again, to as late as 75 for some individuals.
However, unlike the last time, the increase in age would be phased in over time.
Two: Reducing the penalty for a missed RMD
This was long overdue, as the penalty for missing an RMD was extremely onerous, at 50%!
If this comes to pass, the penalty could be reduced to as low as 10% if it is corrected in a timely manner.
Three: Increasing “Catch Up” contributions
Currently, those over the age of 50 have the ability to add more to their employer plans such as 401(k)’s and 403(b)’s.
This would allow more to be put away, and would (finally, for IRA owners) be inflation-adjusted so that the contribution amount would increase over time.
Four: Requiring all plan catch-up contributions to be made to plan Roth accounts
This would be big news, as currently, catch-up contributions reduce your taxes now. Having them subject to Roth treatment would potentially increase your tax bill (and this is probably how they’re attempting to pay for much of the cost of this bill).
Five: Allowing for SIMPLE Roth IRAs and SEP Roth IRAs
This would allow small business owners to have the ability to utilize Roth savings in their employer plans for the first time.
Six: Allowing for matching contributions to be made to Roth accounts
Currently, all employer matching is made on a pre-tax basis. This would give the employee the choice to have their employer match to be directed to a Roth.
While there are many other issues in the bill, these are some of the most relevant and “fun” provisions to think about and potentially plan for. And again, there is nothing in stone yet as this is not law. But if anything comes through that would impact you or your financial plan (and you’re a client), we’ll be addressing it with you.
If you have any questions in the meantime please don’t hesitate to contact us.
This is for educational purposes only, and as always you should consult with your own tax or investment advisor before making any decisions with your own personal tax, retirement, or investment planning.