Retirement Planning

House of Representatives Passes SECURE Act 2.0

by
Bob Mason
on
4/12/2022
House of Representatives Passes SECURE Act 2.0

Whether you are a business owner or an employee, you will want to familiarize yourself with the SECURE Act 2.0 that was passed in the House of Representatives a couple of weeks ago. Though it still will likely face revision in the Senate, the bill has bipartisan support, and once it is passed and signed into law it is expected to boost the savings potential for employers and provide expanded coverage. It will also simplify and clarify the way that these plans are administered and offer incentives for employers to expand participation. 

Known as the "Securing a Strong Retirement Act of 2022," the SECURE Act 2.0. addresses employer-sponsored retirement plans, bolstering the coverage that they provide with the idea of incentivizing greater retirement savings and generally improving the American retirement system.

If passed into law, the SECURE Act 2.0 will represent a significant improvement over the original SECURE Act, which passed in 2019. The Senate is working on its own version of the bill called the Retirement Security and Savings Act, which is currently being reviewed by the Finance Committee. 

For its part, the House version of the bill would make several big changes to the way that retirement plans are currently administered. Enrollment in most new 401(k) and 403(b) plans would be automatic with the goal of having every employee save at least 3% and eventually increasing that contribution level to 10%. Employers who only have a few employees would be eligible for additional credits toward the startup costs of introducing a new pension plan. Employees would see additional tax credits, and the age required for taking minimum required distributions would gradually increase to 75 by the year 2032.  

Employees who have not taken advantage of the availability of retirement plans would find that they have increased chances to catch up on savings if they are between the age of 62-64, raising the amount to $10,000 from the current $6,500. And employers would be able to offer 403(b) plans in a multiple-employer process.

One of the most important benefits to employees under the SECURE Act 2.0 is that it would allow employers of individuals who are making student loan payments and skipping retirement plan contributions to make a matching contribution to the employee's retirement plan up to a percentage limitation. This would be true even if the employee makes no retirement contributions themselves.  The new law would also make retirement savings more accessible to part-time employees.

The SECURE Act 2.0 does not only improve things for employees. From the perspective of employers, the legislation simplifies and clarifies the process, making it easier to correct overpayments, limiting liability, and setting limitations on how much participants and beneficiaries can recoup for the overpayment. It also cuts the excise tax for employees who fail to take the required minimum distribution when they are at the required age, makes it easier for employees to track down lost payments and benefits, and allow penalty-free withdrawals for those who need money to respond to and escape from situations in which they face domestic abuse. 

The details can get confusing, but among the most important provisions are a new ability for employees to make Roth contributions to SIMPLE IRAs and Simplified Employee Pensions, and to permit qualified plans to allow employees to designate that matching contributions be designated as Roth contributions on an after-tax basis. Under current law, those contributions can be either pre-or post-tax. And the bill would change the maximum amount that an employee can designate to go into a qualified longevity annuity contract from $135,000 or 25% of the value of the employee's retirement account to $200,000.

Nothing is certain until the Senate's version of the bill is aligned with the House bill. Some provisions will be added and others may be eliminated, and reconciliation has to take place before it reaches the president's desk for signature.  

Contact a tax professional if you have questions about how the SECURE Act 2.0 would affect you or how you should respond once it is passed.

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Bob Mason

Bob Mason

Bob Mason is the founder of Coast Financial Services Inc. servicing both the Santa Cruz, and San Jose areas. Bob Mason is a skilled financial professional who is fully equipped to assist any of your accounting needs. Founding his firm in Santa Cruz, Bob understands the importance of small businesses and how they form the backbone of the area. Coast Financial Services, Inc. has been dedicated to the growth and profitability of businesses in Santa Cruz for 17 years. To learn more about Bob Mason and the rest of his team, visit their website.

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