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Need to Know: SECURE Act 2.0

Remember the SECURE Act? (If you don't - you can refresh your memory with our blog post about it).

SECURE Act 2.0 (officially called Securing a Strong Retirement Act), builds upon the first version of the legislation, but adds provisions that legislators hope will motivate people to save more, improve retirement plans, and lower costs for employers.

Key New Provisions

SECURE ACT 2.0 does several key things

Gives People Increased Savings Opportunities

Expands automatic enrollment: Employers that offer 401(k), 403(b) or SIMPLE IRA plans will be required to enroll new eligible employees at a 3% deduction level that increases 1% annually until capping at 10%. Employees can opt out if they choose.

Increases Saver's Credit: Low- to medium-income families don't often take advantage of this credit they earn when saving for retirement, but SECURE 2.0 will make it easier by raising the rate of the credit to 50% of what you contribute regardless of income level, increasing the value of the credit to $1,500 (from $1,000), and increasing qualification parameters.

Raises catch-up contribution limit: SECURE 2.0 would account for inflation with catch-up savings, meaning those over 50 would be able to increase their additional $1,000 in contributions each year. Additionally those over 60 would be able to contribute an additional $10,000 (up from $5,000) into their 401(k) and 403(b) accounts or $5,000 (up from $3,500) into their SIMPLE IRAs.

Offers extra assistance to student loan borrowers: People who are making payments on their student loans but not saving for retirement would be eligible for employer matches. Companies would match student loan payments, up to a certain percentage of an employee’s salary, and deposit their matching contribution in the employee’s retirement account—even if the employee made no other contributions of their own. The idea is to give a break to those servicing their debt and let them take advantage of investing for retirement early in their careers, which can greatly increase their nest eggs later in life.

Improves Retirement Plans

Delays required minimum distributions: SECURE 2.0 increases the age at which point

workers have to start making withdrawals from their retirement accounts to 75.

Removes RMDs entirely for those with less in savings. SECURE Act 2.0 stipulates that those with less than $100,000 in retirement savings—indexed for inflation—are exempt from RMD rules. The typical household helmed by someone above the age of 75 with retirement savings has less than $85,000, meaning this could effectively do away with RMDs for many Americans.

Makes it easy to buy annuities: SECURE Act 2.0 would make it easier for plans to offer annuities by easing technical RMD requirements for annuity options in addition to making Qualified Longevity Annuity Contracts (QLACs) more appealing by increasing the amount of your retirement savings you’re allowed to use to buy a policy.

Lower Costs for Employers

Grants tax credits for small businesses: Right now, businesses with up to 50 employees can receive a three-year 50% tax credit for the administrative cost of setting up a retirement plan, up to a maximum benefit of $5,000. SECURE Act 2.0 would increase the tax credit to 100% and allow defined contribution plans to receive higher credits, depending on certain conditions.

Helps out small 403(b) plans: The SECURE Act lowered costs and regulations so small businesses could join up and take part in so-called multiple employer plans (MEP). SECURE Act 2.0 would extend that treatment to 403(b) plans, which are typically offered by nonprofits and government entities. Importantly, they wouldn’t be subject to a rule that would hold every employer responsible if one makes a mistake.

Eases up on plan paperwork. Businesses would no longer be required to send various documents and disclosures to participants who were not enrolled in the company’s plan, although they’d still need to send along a notice that the unenrolled worker can still sign up. Moreover, SECURE Act 2.0 would direct the U.S. Treasury, Department of Labor and Pension Benefit Guaranty Corporation to look into simplifying and standardizing reporting and disclosure requirements. The bill would also lessen penalties for some reporting mistakes.

What's the verdict on SECURE Act 2.0?

Critics of both versions of the SECURE Act note that it does not get to the heart of the retirement crisis in the United States: that nearly 50% of Americans simply aren't saving for retirement. One of the biggest reasons behind the ongoing American retirement crisis is that there isn’t universal coverage by personal retirement savings plans. Workers can go long stretches without having access to a retirement savings plan, as many employers choose not to offer them or unemployment puts them out of reach entirely.

The Bottom Line

The SECURE Act 2.0 does have a host of new provisions and changes, and that may leave business owners with questions. That's where Robin S. Weingast & Associates comes in. We're here to walk you through exactly what SECURE 2.0 means for you and your business. Contact us today.

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