SECURE 2.0 Changes to Retirement Savings

If passed, a new bill will create significant changes to retirement savings options. Securing a Strong Retirement Act, also known as SECURE 2.0, passed the House of Representatives with strong bipartisan support and is expected to pass the Senate.  

The bill could greatly benefit some employees by addressing a shortfall in retirement savings.

Here are some of the proposed changes if SECURE 2.0 becomes law:

  • Beginning with plan years after Dec. 31, 2023, participants will be automatically enrolled in 401(k) and 403(b) plans.
  • Employees will be able to opt out completely or choose contribution levels between 3% and 10%.
  • Retirement savings and coverage will be expanded.
  • The age for required minimum distributions (RMDs) will increase to 73 in 2023, 74 in 2030, and 75 in 2033.
  • IRA catch-up contribution limits will be indexed for inflation. Separate catch-up amounts will be increased to $10,000 for 62 to 64-year-old participants.
  • The saver’s credit will have a flat limitation of 50% of qualified retirement savings contributions per eligible individual.
  • Required years of service will be reduced to two years for 401(k) plan eligibility.
  • Employee qualified student loan payments could be considered in employer matching contributions.
  • The startup costs credit for small employer pension plans will increase from 50% of administrative costs to 100% for employees. Eligibility will increase to five years.
  • The 25% limit of annuity contracts will be repealed.
  • Sales for QLACs will be facilitated.
  • Exchange-traded funds may also be available through certain annuities.

The proposed bill offers additional protection for employees. The recontribution period will be limited to three years for qualified birth or adoption distributions. Employees will be able to self-certify for hardship distributions. The bill also allows for penalty-free withdrawals in certain situation for survivors of domestic violence.

Other relief includes a one-time election of up to $50,000 for a qualified charitable distribution, a reduced penalty for failure to take RMDs, and a national database to keep track of lost employer plans or pensions.

SECURE 2.0 offers changes and protections that may positively impact employees and their retirement accounts.

The team at BSB is following the latest developments and will continue to provide updates. If you have questions or need more information about 401(k) plans and other employee benefit plans, contact Kevin Hamaker.