SECURE Act 2.0 Clears House Committee with 6 Key Revisions
- The Securing a Strong Retirement Act of 2021 (better known as SECURE Act 2.0) was passed by the House Committee Wednesday evening, May 5th.
- The bill is intended to enhance provisions made by the SECURE Act of 2019 and aims to help you boost your retirement savings.
- We previously wrote an article that covered the bill’s provisions which you can read here. Below, we will discuss 6 key changes that were made when the legislation was passed yesterday evening.
The SECURE Act 2.0 legislation was unanimously approved by the House Ways & Means Committee after several new markups on Wednesday, May 5th. The provisions in this legislation are designed to boost retirement savings and make retirement accounts more accessible.
6 Key Revisions and How They May Affect You
The original legislation was largely left as is, but there were a couple of small revisions leading to the “Rothification” of retirement. Here are the 6 key changes and how they might affect you or your business:
- Corrects the family attribution rules for women business owners with minor children or residing in community property states. This would remove attribution for spouses with separate and unrelated businesses in community property states (e.g., California, Texas, etc.), and between parents of minor children who own separate unrelated businesses.
- This will streamline & reduce some of the control group & nondiscrimination testing issues faced by family members who own unrelated businesses that sponsor retirement programs (basically the shares will not be attributed to the children and then back to the other spouse).
- Updates the provisions regarding matching student loan payments for 401(k) plans. This would help these plans pass ADP testing by allowing these participants to be separated or disaggregated for testing purposes.
- This corrects an oversight with the initial legislation that might have caused some plans to have a harder time passing nondiscrimination testing.
- The Required Minimum Distribution (“RMD”) age was changed to a phased-in approach rather than immediately change it to 75. This would increase from the current age 72 requirement to age 73 for those individuals who attain age 72 after December 31, 2021, up to age 74 for those individuals who attain age 73 after December 31, 2028, and finally up to age 75 for those individuals who attain age 74 after December 31, 2031.
- This allows people to maintain their tax-deferred balances for longer which will also mitigate some of the RMD issues faced by retirees.
- The increased catch-up limit will now only apply to ages 62, 63, and 64. The amount of the increased catch-up amount ($10,000) remains unchanged.
- While the amendment does reduce the catch-up limit from the original bill, it will allow modest additional contributions from age 62-64 to help people approaching retirement.
- Catch-up contributions will now all be subject to Roth tax treatment. Previously catch-up contributions could be made on a pre-tax or Roth basis. Under the new law, all catch-up contributions will be made on a Roth basis.
- While this will likely be beneficial for younger & lower-income employees but will limit immediate tax deferral opportunities for high-income individuals.
- Allows Simplified Employee Pensions (SEPs) and SIMPLE IRAs to be designated as Roth IRAs. This would allow contributions (both employee & employer) to be categorized as Roth IRAs. This means that the employee forgoes the tax deduction now, but allows future qualified distributions to not be subject to taxation.
- While this amendment was designed to raise revenue, it likely will be very popular for SIMPLE IRA participants who tend to be younger with lower incomes.