Retirement has long been a hot-button issue in politics. Whether it’s talking about our crumbling Social Security system or our personal retirement savings lagging, politicians often pitch new ways to fix the system.
In 2019, the Secure Act was passed, making it the first significant retirement legislation in 13 years. Now, a bipartisan bill pushed by Reps. Kevin Brady (R-Texas) and Richard Neal (D-Massachusetts), called the Secure Act 2.0, aims to boost Americans’ retirement further.
According to Rep. Brady, Secure Act 2.0 is “really focused on those workers who in the past haven’t saved.”
Another bipartisan retirement bill is also coming down the pike. This more limited bill from the Senate — sponsored by Sens. Chuck Grassley (R-Iowa), Maggie Hassan (D-New Hampshire), and James Lankford (R-Oklahoma) — has some retirement tweaks that are similar to the Secure Act 2.0. Still, it’s not quite as aggressive in its proposals.
Let’s explore the key parts of the Secure Act 2.0 and how they could affect you if they’re passed and signed in at President Joe Biden’s desk.
The Secure Act pushed the age at which retirees had to start taking private retirement distributions — and paying taxes on those distributions — back from 70 to 72 years old. The Secure Act 2.0 aims to initially push this back to age 73 in 2022, then to 74 in 2029, and 75 in 2032.
According to Rep. Brady, “people are living longer, so giving them extra time to build their retirement makes sense.”
The bill also permanently eliminates the required minimum disbursements for retirees with less than $100,000 saved in their retirement plans when they’re 75 years old.
Rep. Brady doesn’t want to stop there, though. He’s also said his goal is to get rid of the minimum disbursement rule altogether.
The other big change in the Secure Act 2.0 is requiring employers to automatically enroll their employees in the company’s retirement plan at a 3% contribution rate. That rate would also automatically increase by one percentage point each year until it reaches at least 10% but no more than 15%. Employees will be able to opt out of the enrollment and adjust their contributions.
Small businesses that don’t offer a retirement plan or have less than ten employees would be exempt from this requirement.
If an employee has student loan debt, the proposed act will allow the employee to repay their student loans instead of contributing to the retirement account, but the employer could match the student loan payments and add them to the employee’s retirement account.
For example, if you had a $100-per-month student loan payment, and your company matched all 401(k) deposits at 100%, you’d make the $100 student loan payment, and your employer would deposit $100 in your 401(k).
The Senate’s plan is toned down. Instead of making enrollments automatic, it focuses on giving employers that already offer automatic retirement plan enrollment a grace period to fix errors in enrollments.
Neither plan addresses the nearly one-third of private workers who have no access to employer-sponsored retirement plans.
Catch-up contributions allow older workers to accelerate their savings by slightly raising the yearly contribution cap as they near retirement.
Under the Secure Act 2.0, the cap on catch-up contributions for 401(k) and 403(b) retirement plans would increase from $6,500 to $10,000 for those aged 62-64. For SIMPLE IRAs, the cap would rise to $5,000 in the same age group.
The Secure Act made it easier for long-term part-time workers — those who’ve worked part-time for a company for at least three years — to participate in the company’s retirement plan.
Secure Act 2.0 would shorten the time frame from three years to two years, starting in 2021.
Social Security is at risk of running low on funds by 2031. The Secure Act 2.0 does a lot to push private retirement forward, but it does nothing to assure the millions who contribute to Social Security through their income taxes will receive their benefits in retirement.
These changes could help millions of Americans better prepare for retirement. However, it’s important to eliminate your debts ahead of retirement as well.
Why is being free of debt so crucial? Because in retirement, you’ll be living on a fixed income. Being without debt and interest charges that you have to repay means fewer expenses you’ll need to cover.
It’s also important to free yourself of high-interest debt in your younger years. Being debt-free in these years gives you more cash to put away for retirement, allowing you to take advantage of compounding interest.
So, start early on tackling your debt now, and your retired self will be rewarded with additional funds and fewer debts to pay. With the help of Tally, you can pay all your credit card debt in one place, using tools to pay down the debt faster.