What to Expect From the New SECURE Act 2.0

Planning for retirement is undoubtedly one of the most important things you’ll ever do for your future self. Even with that in mind, unfortunately, most Americans don’t save for retirement. The interesting thing is that it’s not like they don’t want to; they just can’t. The good news is that the way you plan and save for retirement may soon change. The newly proposed SECURE Act 2.0 is making its way through congress, with most people predicting it being passed into law after the House passed it by an overwhelming vote of 414 to 5. The Senate is working on its own version of the bill, but we don’t see anything preventing the bill from being signed into law. 

If passed into law, the bill would require most employer-sponsored retirement plans to enact measures such as automatically enrolling workers and lower retirement plan administration costs for small businesses. This will not only encourage people to save more, but also try to help the people who are still paying student loans or have the tendency of jumping from job to job. 

Here are some of the main talking points from the bill.

• Boost in the Saver’s Credit. SECURE Act 2.0 would increase the tax credit to 50% of your retirement contribution, although at a $1,500 cap. It also removes income limits and increases the number of taxpayers who qualify for this benefit. 
• Mandatory auto-enrollment for new retirement plans. New 401(k), 403(b), and Simple IRA plans must use automatic enrollment. People with these plans would be automatically enrolled with a pre-tax contribution of 3% of pay, increasing 1% annually up to 10%. However, the rule will only apply to new plans, not existing ones.
• Increase catch-up contributions. People of age 50 and older already can contribute an extra $6,500 to a 401(k) or $3,000 to a Simple IRA. If the SECURE Act 2.0 goes through, the bill will raise this limit to $10,000 for those who are 62, 63, and 64.
• Matching contributions for student loan payments. Younger savers with outstanding student loans often miss out on retirement savings and the matching contributions they could have received. SECURE 2.0 would allow employers to make matching contributions tied to student loan payments, giving them a jump start on their future. 

Links and Resources:

House of Representatives bill (H.R. 2954)

Senate bill (S. 1770)