If you pass the law, here are four ways Secure Act 2.0 could affect you.
If adopted, “Safe Law 2.0” would significantly change retirement. Officially named the Strong Retirement Act of 2021, the law is basically a continuation of 2019. Safe law. Following the approval of the Committee on Ways and Means yesterday, the proposed law is now going to the House. If they were voted by law, here they are four ways in which Secure Act 2.0 could affect you.
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1. Increase the required minimum distribution age
Secure Act 2.0 would, for the second time since 2019, increase the age of risk management. Under the original Safety Act, retirees could begin postponing RMDs from 70 1/2 to 72 years. On the same subject : Proposal would require businesses with 5 or more workers to offer retirement savings plan. Under the new law, the age at which retirees must start drawing from the retirement deferral tax bill would increase to 73 in 2022, 74 in 2029, and age 75 in 2032.
2. Increase the contribution contribution limits
The next way the Act aims to help Americans save for retirement is by increasing the catch-up contribution limit for older workers.
According to the current law, at the age of 50:
- 401 (k) and 403 (b) plans: participants can save an additional $ 6,500 per year
- SIMPLE plans: participants can contribute an additional $ 3,000 per year
- IRA: the catch-up limit is $ 1,000
The Tax Administration occasionally increases the amounts of catch-up contributions, but none is indexed to inflation. Read also : How a Roth IRA Can Make You the Millionaire Next Door | Personal Finance.
Safe Law 2.0 would keep the age of 50 and allow new ones starting from 2023:
- 401 (k) and 403 (b) plans: an additional $ 10,000 per year at the ages of 62, 63 and 64
- SIMPLE plans: an additional $ 5,000 per year at the ages of 62, 63 and 64
- IRA: without changing the compensation limit of $ 1,000, although the amount would be indexed to inflation
The new limits on catch-up contributions will be indexed to inflation in early 2023. Read also : Money Monday: What is an IRA?.
3. Allow companies to make 401 (k) appropriate contributions based on student loan payments
The Safety Act 2.0 would allow employers to pay appropriate contributions to an employee’s retirement plan, even if the employee is not saving. On the bill, the workers facing the decision pay off student loans or except for retirement, part of their student loan payments could coincide with their employer and contribute to their retirement plan.
Keep in mind, appropriate contributions are often voluntary, so the plan would be whether to adopt this provision, if it becomes law. Especially for smaller employers, keeping records could become burdensome.
4. Expanding the use of post-tax contributions to Roth accounts
According to the current law, SEP and SIMPLE retirement plans cannot have a specific Roth IRA account. In the Security Act 2.0, participants in these plans could have the option of making Roth contributions after tax under the plan.
The draft law will also require participants to reimburse contributions to the Roth account in plans 401 (a), 403 (b) and 457 (b). Further, under these plans, employers can allow employees to choose the appropriate contributions to the Roth account over the pre-tax.
Planning for change
While the above changes may be the most important, there are many other provisions in Secure Act 2.0. Only the latest version of the law, it is important to remember that nothing is signed by law. As proposals move through the legislative process, they almost always change. And many never become laws at all.
If you eventually pass the Security Act 2.0, consider how the changes may affect you and what planning options exist. Just because you have more flexibility, doesn’t mean it makes sense to use it. For example, the age of RMD is now 72, but it is does not mean that all retirees should delay withdrawing from a retirement account. Extended use of Roth accounts may offer new options, but earners need to think carefully before participating – especially in light of the proposed tax increases.
