There are two pieces of legislation we will be watching closely over the coming months and providing updates for because they will impact retirement planning in the future.
The first is SECURE Act 2.0
SECURE 2.0 - which is phase 2 of the SECURE (Setting Every Community Up for Retirement Enhancement) Act of 2019 - stalled out in Congress mid-May 2021. Legislators are hopeful it will pass this year.
The new legislation would expand the automatic enrollment of workers in employee-sponsored savings plans and delay the retirement age when retirees must begin taking distributions from them.
SECURE 2.0 Specifics:
● Expand automatic enrollment of workers in employer-sponsored retirement saving plans. Employees would be automatically enrolled in plans such as 401(k)s and 403(b)s unless they opt-out. Workers' initial automatic contributions would be between 3% and 10% of pretax earnings. That amount would be increased by 1% each year until reaching 10%.
● Raise the age at which seniors must take required minimum distributions (RMDs) from their retirement savings accounts to 73 from 72. The bill subsequently would raise the age to 74 starting in 2029 and to 75 beginning in 2032.
● Reduce the penalty for failure to take RMDs (Required Minimum Distributions) from 50% to 25%. And, if this failure is corrected in a timely fashion, as defined by the bill, the penalty would be further reduced to 10%.
● Increase the limits on catch-up contributions for employees ages 62 to 64. In 2021, these workers could contribute an additional $6,500 to their retirement savings plans. This bill would increase that amount to $10,000 and index it to inflation.
● Index the catch-up contribution limit for individual retirement accounts to inflation. Currently, savers ages 50 and up may contribute an additional $1,000 annually to their IRAs, but that limit isn't indexed to inflation.
● Allow employers to match a worker's student loan payment by making an equivalent contribution to that worker's retirement savings plan. This would help individuals pay down their student loans instead of contributing to a 401(k) plan and still receive an employer match in their retirement plan.
The second piece of legislation we're watching closely is Build Back Better.
House Democrats passed the Build Back Better Act in Mid-November. It still needs to be approved by Congress.
Build Back Better specifics:
The bill includes proposed modifications to the retirement savings plans of higher-income individuals -- single taxpayers (or taxpayers married filing separately) with taxable income over $400,000, married taxpayers filing jointly with taxable income over $450,000, and heads of household with taxable income over $425,000 (all indexed for inflation after 2028). This provision would be effective for taxable years beginning after 2028.
Those proposed changes could have significant consequences for contributions to and distributions from Individual Retirement Accounts (IRAs) and other qualified retirement plans depending on an individual's taxable income or those with combined retirement account balances over $10 million.
The bill would create required minimum distributions for retirement accounts with balances of more than $10 million at the end of the preceding calendar year.
It would eliminate "backdoor Roth conversion" loopholes for everyone.
It will also prohibit additional contributions for a taxable year if the total value of an individual's IRA and other retirement plan balances exceeds $10 million at the close of the preceding calendar year.
Keep in mind, these two pieces of legislation have not been passed by Congress yet. However, if you have questions about how these proposed changes could affect you and your current retirement plan, please call the office at 770.249.7424. One of our Advisors can help you get the information you need to choose the best options for your specific retirement goals and current situation.