The SECURE Act was signed into law on December 20th, 2019, and it contained several provisions aimed at improving the way Americans save for retirement. These provisions facilitated small business owner’s ability to set up affordable retirement plans for their employees, while many part-time workers became eligible to participate in employer-sponsored retirement plans. Additionally, the Required Minimum Distribution (RMD) age was pushed back from 70½ to 72 years old, and traditional IRA owners could continue making contributions indefinitely as long as they are contributing earned income. The bill also enabled 401(k) plans to offer annuities for the first time in history. One downside of the legislation, however, was the elimination of the stretch IRA for designated beneficiaries.
While some of the provisions of the SECURE Act were a step in the right direction, many lawmakers felt the bill did not go far enough to expand access to and use of retirement plans. In May of 2019, Senators Rob Portman (R-OH) and Ben Cardin (D-MD) introduced the Retirement Security and Savings Act, aimed at encouraging retirement investing and strengthening the provisions set forth in the SECURE Act. In October of 2020, House Ways and Means Committee chairman Richard Neal (D-MA) and Kevin Brady (R-TX) introduced the Securing a Strong Retirement Act, which contained the same provisions as the May 2019 legislation, plus a few others. These proposals became known colloquially as the SECURE Act 2.0. Unfortunately, these bills struggled to make it through the Congressional pipeline, and with a new Congress in place for 2021, they will need to be reintroduced if they are ever to become enshrined in law.
So, what did lawmakers hope to accomplish with the SECURE Act 2.0? And, how likely is it that these bills will be introduced and passed in the 117th Congress?
Retirement Security and Savings Act
This bill was designed to build on the success of the original SECURE Act and address other retirement concerns, such as employee access to workplace retirement plans. The provisions of this legislation included:
- Allowing matching employer contributions on behalf of employees who are repaying student loans.
- Millions of people around the country are unable to save for retirement because they are focused on paying off their student loans. This provision would permit employers to match any amount paid towards student loans with a matching contribution to a 401(k), 403(b), 457(b), or SIMPLE IRA plan.
- Increasing the catch-up contribution amount for people over the age of 60.
- This would raise the limit for catch-up contributions to $10,000 per year, giving older savers a chance to boost their retirement accounts even if they did not save much when they were younger.
- Increasing the starting age for Required Minimum Distributions from age 72 to age 75.
- Expanding tax credits to savers who contribute to IRAs or employer-sponsored retirement plans and increasing the tax credit from $1,000 to $1,500.
- Exempting IRA owners from taking RMDs with balances under $100,000 when they reach age 75.
- Reducing penalties for failing to take an RMD.
Securing a Strong Retirement Act
This bill included all the same provisions as the Retirement Security and Savings Act and added a few more:
- Expanding tax credits for retirement plan contributions made by small businesses.
- Requiring new 401(k) plans, 403(b) plans, and SIMPLE IRAs to automatically enroll employees into a workplace retirement plans.
- Creating a new type of pooled 403(b) which would allow multiple employers to participate in a single plan together.
- Requiring employers to allow long-term part-time employees to make contributions to 401(k) plans after 2 years of consecutive employment.
Will the SECURE Act 2.0 be Back in 2021?
While many of the ideas introduced in the SECURE Act 2.0 received bipartisan support in Congress, it will take more than a simple majority to become law. Despite being popular with both parties, the first SECURE Act only passed after being tucked into a must-pass 2019 spending bill. As a standalone bill, it seemed dead on arrival, and a standalone SECURE Act 2.0 would face similar obstacles in the new Congress. It is possible that one or both bills could be reintroduced in 2021, or that some of their provisions could be incorporated into other bills; but there is no indication about either of these bills making a resurgence any time soon.
With that being said, more opportunities to expand participation in retirement plans, retirees may become less dependent on Social Security to make ends meet in the future. By raising the age for RMDs investors would be given more time to build up their nest eggs and removing RMD requirements for investors who have less than $100,000 in their accounts would give those investors more control over how to spend down their retirement savings. Finally, allowing investors over the age of 60 to increase their catch-up contributions gives them the chance to make up for lost time and increase the value of their nest egg before entering retirement.
While the SECURE Act 2.0 may be relegated to the Congressional waste bin for now, those interested in saving more for retirement do not have to wait. The Exclusive Crash Proof Retirement ® System can help you save for retirement, and with the expertise of our licensed retirement phase experts we can educate you about how the first SECURE Act impacts your retirement goals, as well as, keeping you up to date with legislation that could impact your retirement plan. If you would like to find out more about the protection and guarantees of a Crash Proof Retirement ® call 1-800-722-9728 or visit crashproofretirement.com.