The U.S. House of Representatives recently passed the Securing a Strong Retirement Act (also known as SECURE 2.0). The Senate is currently working on its version of the bill. Here are some key provisions that would affect both employers and individuals if enacted:
Catch-up contributions
Currently, qualified individuals age 50 or older can make catch-up contributions to certain retirement accounts on top of the standard contribution limits.
In 2024, SECURE 2.0 would increase the catch-up contributions age 62 to 64 from $6,500 to $10,000 for 401(k)s and from $3,000 to $5,000 for SIMPLE plans, and these amounts would be indexed for inflation on a going-forward basis. In addition, the $1,000 annual catch-up for IRAs, which hasn’t changed in years, would be indexed going forward.
The bill would also treat your catch-up contributions after 2023 as post-tax Roth contributions (currently, you can choose whether you want pre- or post-tax). Still, you would be allowed to elect whether your employer’s matching contributions would be treated as pre-or post-tax. Currently, these contributions can be pre-tax only.
RMDs
SECURE 2.0 would increase the age of required minimum distributions (RMDs) from IRAs and other qualified plans from age 72 to:
- In 2023, age 73
- In 2030, age 74
- In 2033, age 75
This would give you more time to grow your retirement savings tax-free. But delayed RMDs may translate to more significant withdrawal requirements down the road.
QCDs
Some taxpayers use qualified charitable distributions (QCDs) to give to charity & satisfy their RMD requirements. With a QCD, you can distribute up to $100,000 per year directly to a 501(c)(3) charity after age 70½. You can’t claim a charitable deduction for this donation, but the distribution is excluded from taxable income.
The bill would make this option more attractive by indexing the $100,000 limit for inflation. It also would allow you to make a one-time QCD transfer of up to $50,000 through a charitable gift annuity or charitable remainder trust (as opposed to directly to the charity).
Automatic enrollment
The House bill would require employers to enroll all newly eligible employees in their 401 automatically (k) plans at a deduction rate of at least 3% (but no more than 10%) of the employee’s pay, increasing it by 1% each year until the employee is contributing 10%. Employees could opt-out or change their contribution rates.
Annuities
SECURE 2.0 would allow employers to offer a broader range of annuities with guaranteed annual increases on the rate of return.
Matching contributions on student loan payments
Many employees cannot contribute to their retirement accounts because of student loan payment responsibilities. Such employees miss out on matching contributions from their employers.
SECURE 2.0 would allow employers to contribute to specific retirement plans for employees making qualified student loan payments.
Part-time employee eligibility
Employers must allow part-time employees who work at least 500 hours for three consecutive years to participate in their 401(k) plans. Under SECURE 2.0, part-time employees would need to work at least 500 hours for only two consecutive years to be eligible.
Small business tax credits
SECURE 2.0 would increase the three-year credit for qualified retirement plan startup costs from 50% to 100% for employers with up to 50 employees (currently 100 employees). The annual cap would be $5,000 (increased from $500). It also provides an additional credit based on a percentage of the amount the employer contributes on behalf of employees, up to $1,000 per employee.
What does this mean for me?
The Senate is working on its bill, and the two would need to be reconciled before it reaches President Biden’s desk. SECURE 2.0 could change drastically by the time it is enacted. ATKG will be closely monitoring the Senate proposals.
ATKG is here to help
Please contact your ATKG advisor if you have any questions about how the proposed bill could affect your tax situation or your business.
Courtney Shipman joined ATKG’s tax practice in 2021 and became a Certified Public Accountant in April of 2022. She received a Bachelor of Business Administration in Accounting, graduating Cum Laude from Texas A&M University. Courtney went on to earn a Master of Science in Accounting from the university. While in college, she worked with a Divorce Litigation CPA firm.
