‘Secure 2.0’ authorized by Congress as part of sweeping appropriations bill, will lead to further changes to the American retirement system

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Three years after the Security Act of 2019 ushered in the first major changes to the American retirement system in more than a decade, more amendments are now on their way.

Dozens of retirement-related provisions known as “Secure 2.0” are included in a sweeping $1.7 trillion appropriations bill that won House approval on Friday — after approval by the Senate on Thursday — and will go to President Joe Biden for his signature.

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said Susan Neely, president and CEO of the American Council of Life Insurance Companies.

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“Part-time workers, military spouses, small business employees, and student loan borrowers are just a few who will benefit and have a better chance of setting themselves up for a more financially secure retirement as a result of Congress’s action today,” Neely said. .

The provisions of Secure 2.0 are intended to build on improvements to the retirement system implemented under the Secure Act of 2019. Those changes included giving part-time workers better access to retirement benefits and an age increase when required minimum distributions, or RMDs, from some accounts Retirement should begin – to the age of 72 from 70½.

Retirement plan changes to the overall spending bill

This time around, some of the many provisions found in the Mega Credits Act include:

  • 401(k) Automated Application: Employers will be required to automatically enroll employees in their 401(k) plan at a rate of at least 3% but no more than 10%. Businesses with 10 or fewer workers and companies new to business for less than three years are among those that will be excluded from the mandate.
  • Increasing age at which rhythmic movement disorders should begin: The current bill would increase it from the age of 72 to 73 in 2023 and then to the age of 75 in 2033. In addition, the penalty for not taking RMDs would be reduced to 25%, and in some cases, 10%, from the current 50%.
  • Create larger “catch-up” contributions for older retired savers: Under current law, you can put an additional $6,500 a year into your 401(k) once you reach age 50. Safe 2.0 will increase the limit to $10,000 (or 50% more than the usual compensation amount) starting in 2025 for savers ages 60 to 63. The compensatory amounts will also be indexed for inflation. In addition, all compensation contributions will be subject to Roth treatment (ie not before tax) except for workers earning $145,000 or less.
  • Expanding employer 401(k) matching options: The proposal would make it easier for employers to make contributions to 401(k) plans on behalf of employees who pay student loans instead of saving for retirement.
  • Improving workers’ access to emergency savings: One provision allows employees to withdraw up to $1,000 from their retirement account for emergency expenses without having to pay the 10% tax penalty typical for early withdrawal if they are under the age of 59½. Companies can also allow workers to create an emergency savings account with automatic payroll deductions, up to a maximum of $2,500.
  • Increased access of part-time workers to retirement accounts: The original insurance law stated that part-time workers who book between 500 and 999 hours for three consecutive years could qualify for a 401(k) for their company. 2.0 Secure reduces that to two years. Companies have already been required to award eligibility to employees who work at least 1,000 hours per year.
  • Helping workers who pay off student loans save for retirement: Secure 2.0 makes it easier for employers to make contributions to 401(k) plans (and similar workplace plans) on behalf of employees making student loan payments instead of contributing to their own retirement plan.
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  • Increase the amount that can be put into a qualifying annuity: Currently, the maximum that can go into QLAC is either $135,000 or 25% of the value of your retirement accounts, whichever is less. Secure 2.0 eliminates the 25% cap and increases the maximum amount allowed in QLAC to $200,000.
  • Change required minimum distribution rules for Roth 401(k)s: Currently, while Roth IRAs do not come without RMDs during the life of the original account owner, this is not the case for Roth 401(k)s. Starting in 2024, the pre-mortem distribution requirement will be eliminated.
  • Expanding uses for unused college savings money: The ruling would allow tax- and penalty-free rollovers to Roth IRAs from 529 college savings accounts that are at least 15 years old, within limits.
  • Helping military spouses access retirement plans: Secure 2.0 creates small business tax credits that allow military spouses to instantly enroll in their plan and qualify for immediate entitlement to any matches with their employer.

The bill also includes incentives for small businesses to set up retirement savings plans for their workers, encourages individuals to set aside long-term savings and makes it easier for annuities to be an income option for retirees.

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