Hugh F. Wynn
Secure Act 2.0 Proposes BIG Changes to Retirement Plans
There is much buzz around the proposed Securing a Strong Retirement Act of 2020, or as some are calling it - Secure Act 2.0.
The bipartisan bill recently introduced by Ways and Means Committee Chairman Richard Neal (D-Mass.) and Ranking Member Kevin Brady, (R-Texas), is intended to "...help a greater number of Americans successfully save for a secure retirement." I'm liking it.
Secure Act 1.0
The bill has been nicknamed "Secure Act 2.0" because it builds on the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019. According to an excellent article published on the Investopedia website by Chris Sonzogni, the highlights of SECURE 1.0 include:
Making it easier for small businesses to offer their employees 401(k) plans by providing tax credits and protections on collective Multiple Employer Plans;
Allowing retirement benefits for long-term, part-time employees;
Removing maximum age limits on retirement contributions, formerly capped at age 70½;
Raising the required minimum distribution (RMD) age to 72 from 70½;
Allowing penalty-free withdrawals up to $5,000 from retirement plans for the birth or adoption of a child;
Relaxing rules on employers offering annuities through sponsored retirement plans;
Allowing penalty-free withdrawals of up to $10,000 from 529 education-savings plans for the repayment of certain student loans;
Revising components of the Tax Cuts and Jobs Act that raised taxes on benefits received by family members of deceased veterans, as well as students and some Native Americans; and,
Raising an estimated $15.7 billion to pay for these changes: removing the stretch IRA estate-planning strategy that permits non-spouse beneficiaries of IRAs to spread disbursements from the inherited money over their lifetime. The new limit will be within 10 years of the death of the original account holder.
I learned about Securing a Strong Retirement Act of 2020 after reading "Big Changes May be Coming to 401(k), IRA and Other Retirement Plans" by Rob Berger, Forbes Deputy Editor and Senior Contributor. I dug a little further and found this quote from Chairman Neal about need for the enhanced legislation:
"COVID-19 has only exacerbated our nation’s existing retirement crisis, further compromising Americans’ long-term financial security,” said Chairman Neal. “In addition to meeting workers’ and families’ most pressing, immediate needs, we must also take steps to ensure their wellbeing further down the road. With the Securing a Strong Retirement Act, Ranking Member Brady and I build on the landmark provisions in the SECURE Act and enable more workers to begin saving earlier – and saving more – for their futures. This bill will help Americans approach old age with the confidence and dignity they deserve after decades of hard work and sacrifice.”
I like it even more.
How It (Could) Help
Rep. Brady said the goal is "...to make it easier for folks to save, protect Americans’ retirement accounts, and give workers more peace of mind as they plan for the future.” How? By making changes to 401(k), 403(b), IRAs and other retirement plans, including:
Promoting savings earlier for retirement by enrolling employees automatically in their company’s 401(k) plan, when a new plan is created;
Creating a new financial incentive for small businesses to offer retirement plans;
Increasing and modernizing the existing federal tax credit for contributions to a retirement plan or IRA (the Saver’s Credit);
Expanding retirement savings options for non-profit employees by allowing groups of non-profits to join together to offer retirement plans to their employees;
Offering individuals 60 and older more flexibility to set aside savings as they approach retirement;
Allowing individuals to save for retirement longer by increasing the required minimum distribution age to 75;
Allow individuals to pay down a student loan instead of contributing to a 401(k) plan and still receive an employer match in their retirement plan;
Make it easier for military spouses who change jobs frequently to save for retirement;
Allowing individuals more flexibility to make gifts to charity through their IRAs;
Allowing taxpayers to avoid harsh penalties for inadvertent errors managing an IRA that can lead to a loss of retirement savings;
Protecting retirees who unknowingly receive retirement plan overpayments; and
Making it easier for employees to find lost retirement accounts by creating a national, online, database of lost accounts.
My Favorite Parts
I am encouraged by the entirety of the legislation and hopeful it will emerge unscathed from the Congressional process. If I have to pick favorite parts, I am most supportive of the provision that requires 401(k), 403(b) and SIMPLE plans to automatically enroll employees eligible to participate in those plans; and the provision that raises the mandated age for RMDs from 72 to 75 years old. I'm also excited about the fact that SECURE 2.0 would allow employers to make matching contributions under a 401(k), 403(b) or SIMPLE IRA for employees who are repaying student loans.
Show Your Support
The legislation provides for a number of major changes that could affect folks’ retirement plans in 2021. These are positive changes that would inure to the benefit of all savers. Apply pressure on your legislators if and where you can.
These changes will improve everyone’s retirement package.