News: How the Secure 2.0 Act Could Impact Your Retirement If It Passes

In late March, the House of Representatives overwhelmingly passed (414 to 5) all-new legislation to help Americans save for retirement. The Securing a Strong Retirement Act of 2022 — more simply called Secure 2.0 — builds on the Secure Act of 2019. 

Secure 2.0 focuses on expanding the number of employers offering retirement plans and the number of employees using them, among other key retirement issues. 

Let’s dive into the specifics of the act and how it may affect you. 

Requires all but the smallest employers to participate

The most far-reaching part of the bill is the section stipulating that all employers must offer 401(k) or 403(b) retirement plans with auto-enrollment. The auto-enrollment would start at 3% of the employee’s pay and increase one percentage point annually until it reaches 10%. 

The employee would, of course, have the option to opt-out of the auto-enrollment if they wish. However, 84% of auto-enrolled employees appreciated the benefit, according to a 2021 survey. 

Companies with smaller 401(k) programs (10 participants or fewer) and startups with less than three years in business are exempted from this rule.

Decreasing your tax burden

The saver’s credit — a tax credit low- to middle-income families get when they save for retirement — also boosts the Secure 2.0 Act. The act would expand the number of people eligible for the credit and set the credit at 50% for all qualified taxpayers, regardless of income. The current law scales the credit down as the taxpayer’s income increases. 

Increasing contributions for older savers

Catch-up contributions have been a part of retirement plans for years, allowing older savers to allot additional income into their retirement plans. The current catch-up contribution rate is $6,500 in 401(k) and 403(b) plans and $3,000 in SIMPLE plans. 

The Secure 2.0 Act would increase these to $10,000 and $5,000, respectively, and continue to be indexed with inflation. 

This would help older savers better prepare for retirement, especially those who got a late start on saving. 

Providing a student loan match option

Secure 2.0 also gives employees a chance to pay off loans faster. Employers could match all student loan payments up to a certain percentage of their salary and put it into retirement savings. 

This would give young workers the ability to save for retirement early and manage their student loans. 

Delaying required minimum distributions

The original Secure Act pushed the age a saver must make minimum withdrawals from their retirement account to 72. Secure 2.0 increases the age to 73 by 2022, 74 by 2029, and 75 by 2032.

This would allow savers who don’t need to tap into their retirement accounts the chance to earn more interest. 

Improving annuity rules

Annuities can stabilize your retirement income, helping it last throughout your golden years. Secure 2.0 builds upon this by easing the required minimum disbursements on annuities and increasing the amount of the retirement savings you can use to buy an annuity.

Improving tax credits for small businesses

Under the current law, businesses with 50 or fewer employers can get a retirement plan startup tax credit of up to 50%. Secure 2.0 would increase this tax credit to 100% of the plan startup costs and the maximum number of employees to 100. 

Helping with 403(b) plans

The Secure Act reduced small businesses' costs and regulations surrounding multiple employer plans (MEPs). Secure 2.0 would do the same for 403(b) accounts, enticing workplaces to leverage this retirement account. 

It still must pass the Senate

The Secure 2.0 Act passed the House with no problem, but it still needs to pass the Senate before reaching President Biden’s desk for a signature. Given the overwhelming bipartisan support in the House, it’s expected to pass with ease.