House passes Secure Act 2.0
The House of Representatives overwhelmingly approved a bill designed to improve retirement savings. The Securing Strong Retirement Act of 2022, also called Secure Act 2.0, was approved with a bipartisan vote of 414-5.
Next, the legislation heads to the Senate. However lawmakers there have a retirement reform package of their own. Analysts say there’s about a one-third overlap between the House and Senate bills. Both seek to raise the age for required minimum distributions, increase catch-up contributions, and assist employees in saving while paying student loans.
The House bill builds on the first Secure Act, which was passed in 2019. Some key provisions of the current enhancement:
Mandatory automatic enrollment. If enacted, the bill would require employers to auto-enroll eligible employees in a 401(k) plan at 3% of their salary. Enrollment would increase annually until it reached 10%, unless the employee opted out or changed the contribution amount.
Student loan help. The bill would allow employers to match student loan payments as contributions to an employee’s 401(k), 403(b), or SIMPLE IRA.
Raising the age for RMDs. Currently, if you’re 72 or older, you must take required minimum distributions (RMDs) from your retirement accounts or be subject to a penalty. The bill would increase the starting age for required minimum distributions over the next decade, reaching 75 in 2032. It also cuts the current penalty rate by at least half.
New catch-up limit. The bill increases catch-up contribution limits for some individuals nearing retirement. The current limit is $6,500 for those age 50 and above. The bill would allow people in the limited age window of 62-64 to make contributions up to $10,000.
Increasing QCDs. The bill would enhance the annual limit on qualified charitable distributions (QCDs) from $100,000 by adding an index for inflation. It also allows a one-time QCD transfer of up to $50,000 through a charitable gift annuity or charitable remainder trust.
A QCD is a direct transfer of funds from your IRA to a qualified nonprofit. QCDs count toward RMDs, so if you don’t need that money, you can avoid paying taxes on it by giving it to charity.
Here are some other changes in the House-passed measure:
- Creates a “lost and found” database to help employees keep track of their retirement savings accounts when they switch jobs.
- Allows workers to elect that their employer match be applied to a Roth 401(k), a move that provides tax advantages when an employee reaches retirement.
- Reduces the service requirement for part-time workers to participate in their employer retirement plan to two years, down from three.
- Enhances a startup tax credit for small businesses launching a retirement plan.
- Lessens penalties for early retirement withdrawals for victims of domestic abuse.
- Removes the 25% cap on how much of your retirement savings you can put in a qualified longevity annuity contract, or QLAC.