The House version of the Secure Act 2.0 is working its way through the Senate right now. It’s another piece of landmark legislation that could impact the retirement landscape. However, there’s still a lot that can change between now and the finish line. Despite that, there are several themes that seem likely to emerge based on what we’ve seen in the legislative process to this point. Even though nothing is set in stone, let’s look at four of those themes and their potential implications to your own situation:
Employers are going to make it easier and more rewarding to save. Automatic enrollment – signing people up to make contributions to their employer retirement plan when they start a new job – could get a boost, along with automatic increases in how much individuals contribute. These techniques are shown to boost both participation and savings rates. Another exciting change is the potential for employers to make contributions to Roth accounts. Prior to any change, employer matching contributions, profit sharing or other contributions have always been directed into the pre-tax side of a retirement account. This change could really benefit younger savers by allowing them, by virtue of their employer’s contributions, to create an even larger potentially tax-free nest egg on the path to a relaxing retirement.
Savers may be able to save more, later into the game. While time is money, does more time mean more money? That’s the bet that Washington is making when it comes to saving for retirement. It appears as if there could be an aggressive increase in “catch-up” contribution limits available to those 50 and older and perhaps an additional boost for savers in their 60s. This could allow more seasoned savers to leverage tax-advantaged accounts to a larger extent to make up ground later in life. As a new empty nester, I can see how this may be helpful at a time in life when earning power can be at its highest and financial obligations are down.
Military spouses may reap rewards. Any new legislation may include provisions that will incentivize employers, even small employers, to offer retirement plans to military spouses. These changes could make the plans more attractive to both the employer (tax incentives) and the military spouse (quicker eligibility/shorter vesting periods). This is good news for an amazing group of unsung heroes who may miss out on important benefits because of the mobile military lifestyle.
Retirement distribution rules are likely going to change again. I’m not sure I’ve fully recovered from the demolition of the old stretch-IRA rules that took place in the original Secure Act. In any case, it seems like the age at which retirement plan and IRA distributions must begin is likely to be pushed back again. In recent years, we’ve seen the required beginning date shift from 70½ to 72 and it could become later. As this happens, it might make more sense to evaluate the implications of “voluntary” distributions or Roth conversions from your retirement plans and IRAs as you create your retirement income strategy. This could allow you to better manage income taxes and order effects such as how much you pay for Medicare or how much of your Social Security is taxed.
This likely only scratches the surface of what we will see. However, changes to the rules surrounding retirement and taxes drive home the importance of monitoring and updating your personal financial plan. Use the Secure Act 2.0 as an opportunity to talk with your financial team about potential adjustments to your retirement strategy.
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