Several pieces of legislation targeting retirement plans have been making their way through the Senate and House of Representatives this year. The House passed a version of the Secure 2.0 Act called Securing a Strong Retirement Act in March. The Senate passed the Retirement Improvement and Savings Enhancement to Supplement Healthy Investments for the Nest Egg (RISE & SHINE) Act and the Enhancing American Retirement Now (EARN) Act in June. These bills will likely be condensed into one package known as the SECURE Act 2.0.
What is likely to be in Secure Act 2.0?
With the House and the Senate having their own version of the Secure Act 2.0, we have yet to see what pieces of each bill will make it into law.
The House Version of Secure Act 2.0
The House version focuses on improving retirement plans, lowering costs for employers, and incentivizing people to save more.
Incentivizing people to save more
- Expands automatic enrollment in retirement plans – The act would require companies that are at least three years old, with more than ten employees, and with 401(k) or 403(b) accounts, to automatically enroll all new, eligible employees at a 3% contribution rate that would increase by 1% annually until it reaches 10%. Employees will have the option to opt out and existing plan members wouldn’t have to change anything.
- Increasing catch-up contribution limits – Would allow people aged 62 to 64 to contribute an extra $10,000 to their 401(k) or 403(b) plans or $5,000 to a Simple IRA. However, beginning in 2023, these catch-up contributions would be taxed as Roth contributions, which would be subject to income tax before being invested.
- Extra benefits to student loan borrowers – Employers will be able to match student loan payments up to a certain percentage of an employee’s salary and contribute their match directly into the employee’s retirement account, even if the employee isn’t making retirement contributions of their own.
- Promotes Saver’s Credit – An existing tax credit for low-to-medium income households will increase the number of people who qualify and increase how much they can deduct.
Improve retirement plans
- Delay Required Minimum Distributions (RMDs) – Currently, the age at which investors would have to withdraw from their retirement accounts is 72. This bill would increase the RMD age to 73 by 2023, 74 by 2029, and 75 by 2032.
Lower costs for employers
- Tax credits for small businesses – This bill increases the three-year small employer startup tax credit from 50% to 100% for companies with up 100 employees (increased from 50), with a per employee cap of $1,000.
- Help small retirement plans – The original Secure Act encouraged small businesses to participate in multiple employer plans (MEP) by lowering costs and some regulations. This bill would extend that treatment to 403(b) plans.
The Senate Version of Secure Act 2.0
The two bills the Senate passed, the EARN Act and RISE AND SHINE Act, will be eventually consolidated into one package that will need to be reconciled with the House’s version of Secure Act 2.0. Some of the House’s provisions are also in the Senate’s version of the Secure Act 2.0. Below are some of the notable differentiators.
- Emergency savings accounts – The RISE AND SHINE Act allows employers to offer emergency savings accounts linked to an employee’s retirement plan. Employees could opt to save up to 3% of their annual pay with a maximum of $2,500 as an after-tax contribution.
- Encourage employees to invest for retirement – If a company plan automatically enrolls employees, yet an individual decides not to participate, the RISE AND SHINE Act would require employers to prompt them to reconsider at least every three years.
- Offer retirement plans to domestic employees – The EARN Act allows employers of domestic workers, such as nannies, to offer a simplified Employee Pension IRA (SEP IRA).
We’re All In
At Prosperity – An EisnerAmper Company, we are carefully watching new legislation as it unfolds in the House and the Senate. We will communicate with clients as changes are enacted that could affect their retirement plans. Should you have any questions, please do not hesitate to contact us at (410) 363-7211 or by filling out the form below.
Although the information in this article has been gathered from sources believed to be reliable, it cannot be guaranteed. Federal tax laws are complex and subject to change. This information is not intended to be a substitute for specific individualized tax or legal advice. Neither DAI Securities, LLC, nor its registered representatives, offer tax or legal advice. As with all matters of a tax or legal nature, you should consult with your tax or legal counsel for advice.
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