We’re strong supporters of opportunities that can help working Americans save more for retirement. We’re closely watching a bill moving through Congress that builds on the previously passed Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019.
The proposed law is dubbed the Securing a Strong Retirement Act of 2022 but is better known as SECURE Act 2.0. Understanding what is in the new proposed legislation is essential for maximizing retirement savings and can also play a significant role in tax planning.
Here are some highlights:
- The Act would codify a requirement for most employers offering 401(k) and 403(b) plans to automatically enroll employees as they become eligible to participate in their plan, starting with a 3% contribution and increasing by 1% each year. Automatic enrollment is a powerful tool in growing savings for average workers.
- A provision would allow employers to make matching contributions to specific plans for employees making student loan payments — an innovative way to boost retirement savings.
- The new bill would increase the age at which individuals must start withdrawing Required Minimum Distributions (RMDs) from their retirement accounts. The increased required age would increase from 72 to 75 in phases, beginning in 2023, so individuals can start RMDs at age 73 if they reach their 72nd birthday after December 31, 2022.
- The Act also addresses “catch up” contributions, which retirement savers can currently take advantage of at age 50. Catch-up savings amounts in IRAs would be indexed for inflation so that people increase contributions over time. In addition, workers would be able to contribute up to $10,000 in catch-up contributions to employer retirement plans, an increase from $6,500, which is currently allowed. The catch-up for employer plans would likewise be indexed for inflation.
The proposed legislation would also increase opportunities for retirement savings as Roth contributions. While Roth conversions are a way to increase Roth assets, provisions in SECURE Act 2.0 may provide additional avenues and flexibility. Here’s how:
- SIMPLE IRAs and SEP IRAs would now allow for Roth contributions beginning January 1, 2023.
- Other employer plans could allow for matching contributions on a Roth basis. That benefit is not currently available as all employer contributions, including under a matched arrangement, are pre-tax contributions.
- Older savers could make c, an advantageous enhancement creating new considerations for tax planning around retirement savings for older workers. After all, the benefit of Roth savings over pre-tax savings can reduce taxes over the long term.
As the bill winds its way through Congress, we will continue to monitor its progress and consider the impacts of its new rules. At BFS Advisory Group, we understand the potential benefits of incorporating tax strategies in our clients’ financial planning. We welcome the opportunity to work with you to provide guidance and navigate the ever-changing tax landscape. Contact us at hello@bfsadvisorygroup.com.
Sergio Garcia is a CERTIFIED FINANCIAL PLANNER™ Professional and Managing Director of Financial Planning at BFS Advisory Group. He uses the proprietary program, DBT360 Financial Plan, to help clients prioritize their goals, leverage their resources, and address their risks. The planners at BFS Advisory Group teach the public and the financial services industry about the importance of values-based financial planning and investor education.