SECURE Act 2.0: Key Changes to Retirement Savings for Americans

SECURE Act 2.0 is currently working its way through Congress. Here's what it might mean for you.

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Key points

• The bill supports savers by adding new 401(k) provisions.
• Older workers and retirees would benefit from increased catch-up contributions and higher RMD ages.
• The SECURE Act 2.0 now heads to the Senate after passing the House by a vote of 414-5.

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For workers who are contributing to an employer sponsored retirement plan, the SECURE Act 2.0 may change how you save. The bill adds provisions for student loan borrowers, new employees, and after-tax savers.

If you are one of the 43.4 million Americans with Federal student loan debt, you may be able to save while you repay. The bill allows employers to treat employee student loan debt payments as if they were contributions to a 401(k), effectively allowing employers to make a matching contribution on that amount. It works like this: If you pay $1,000 as a student loan payment, your company can match that payment with a $1,000 contribution to your retirement account. With this provision, student loan borrowers can repay their debt without missing out on retirement savings.

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Another proposed retirement plan change

Another change made by the bill is automatic 401(k) and 403(b) enrollment and escalation of deferrals. The bill would require employers to automatically enroll eligible employees in their 401(k) or 403(b) program. The employee contribution would begin at 3% pretax, increasing by 1% annually up to a maximum of 15%. The ruling applies to new retirement plans only. Small companies may be exempt, and employees can opt out at any time.

Traditionally, matching employer contributions have had to be made on a pretax basis. The SECURE Act 2.0 changes that by allowing employers to make Roth contributions to employee accounts. Employers would not be required to do so, and would be eligible to begin in 2023.

For older employees and retirees

The SECURE Act 2.0 also provides new opportunities for workers nearing retirement and those who have left the workforce. Catch-up contributions and distributions are among the bill's proposed changes.

For employees ages 62 to 64, retirement plan contribution limits will increase starting in 2024. Previously, catch-up contributions for this age group have been limited to $6,500, but the new legislation would boost that amount to $10,000. Additionally, all catch-up contributions after 2023 will be subject to Roth tax treatment, providing tax-free retirement distributions at the expense of current taxes.

Retirees will no longer be forced to take required minimum distributions at age 72, according to the bill. The starting age for required distributions would be increased to 73 in 2022, 74 in 2029, and 75 in 2032.

The legislation would also create an online Retirement Savings Lost and Found Database where employees can find accounts left at previous employers.

What happens next?

The SECURE Act 2.0 passed the House of Representatives with bipartisan support and 414 'Yea' votes. It is now passed off to the Senate, and may be voted on as soon as April.

For now, the future of the bill in its current form is uncertain. The Senate is likely to vote on a number of retirement-related bills this year, including their own version of the Securing a Strong Retirement Act called the Retirement Security and Savings Act. The two pieces of legislation overlap significantly, and it is unclear which bill will ultimately prevail. For now, workers and retirees alike can hope for a more retirement-friendly tomorrow.