ARE YOU FEELING SECURE? SECURE 2.0, PART 2

In my previous post, I mentioned that it was the start of a three-part series discussing SECURE 2.0 highlighting some of my favorite parts.  As a reminder, this is a new piece of proposed bipartisan legislation seeking to improve retirement plans.  While there are more steps to this Act becoming a law, I feel pretty confident that this one has legs, and candidly, that's GREAT news for the retirement plan community and our clients.  I think this will get done in 2021 with implementation of many of the provisions in 2022. 

For a an amazing summary of all of the new provisions contained within the final mark-up, here's a link What's in SECURE 2.0?.

The What:

Committee Chairman Richard Neal (D-MA), along with the Committee’s ranking Republican, Rep. Kevin Brady (R-TX), first introduced the bill, Securing a Strong Retirement Act (SSRA), last October as a sequel to the 2019 SECURE Act. While that version of the bill included some 36 provisions, the new Securing a Strong Retirement Act of 2021 (H.R. 2954) now contains about 45 provisions, including new revenue offsets to pay for the bill. 

My Favorite Few Provisions continued:

These next two provisions I think work together as they're adjustments to the existing provisions.  Specifically, we're moving back the ages on certain rules allowing greater savings and potentially delaying when taxes need to be recouped which aligns with trends towards working longer and increases in life expectancy over the last several decades.

New Required Beginning Dates for RMDs: What's an RMD?  RMD's or Required Minimum Distributions are the requirements placed on retirees to codify the oldest age they can attain before they MUST start taking distributions from their tax advantaged accounts and start paying taxes.  For many years, really decades, the age was set to 70 1/2.  In the first SECURE ACT it was moved back to age 72.  In this new rule, it piggy back's on this to expand the age ultimately back to age 75.  My take is that I think it's going to be a bit confusing to implement, but I like what they're trying to do.  Essentially, what the rule says is that for those who want to delay tapping their IRAs or retirement plans for as long as possible, they'll have more time depending on what age bracket they fall in.  While I like this idea, I'm not a fan of the 'how' on this as I think it's going to cause confusion and will need care and attention paid to it instead of making it simple.  Here's how it will work.

The Phase-In: The new rules will require a phase in of the required beginning date from the calendar year in which the employee or IRA owner attains age 72 to the calendar year in which the employee or IRA owner attains age 73.  This is ONLY for individuals who attain age 72 after Dec. 31, 2021, and who attain age 73 before Jan. 1, 2029. But if you're not in that window, there's a second and third tier as follows;

The proposal changes such age from 73 to 74 for individuals who attain age 73 after Dec. 31, 2028, and who attain age 74 before Jan. 1, 2032.  With the third tier further increasing the RMD age to 75 for individuals who attain age 74 after Dec. 31, 2031. T

In short, GREAT idea, but this is going to require some attention to detail for practitioners.

Higher Catch-up Limit to Apply at Age 62, 63 and 64: What's Catch-up?  The current rule stipulates that if you a participant has attained age 50, that they can defer more than the statutory limit to their 401(k) plan (and certain other plans).  The deferral limit in 2021 is $19,500 and those over 50 can do an additional $6500 for a total of $26,000. The idea is to help aid workers in "catching up" for the earlier years in their careers where they weren't able to contribute to the maximum.  

In this new legislation it raises the amount of the catch-up contributions to $10,000 for those who have attained age 62, 63 or 64, but interestingly ONLY for those three ages and NOT for those older than 64.  This would apply to those in employer-sponsored 401(k) and 403(b) plans. Similar provisions with different amounts would apply to SIMPLE IRAs. For those aged 50-61, the provision retains the existing catch-up contribution limits. In addition, these changes would also be indexed for inflation like current limits, starting in calendar year 2023. The provision applies to tax years beginning after Dec. 31, 2022.

My take, I very much like the idea here, people are woefully behind on saving for retirement, so anything that allows more money to get put away I'm in favor of.  However, just like the RMD provision, this one is going to require someone to pay attention to ensure that the increase happens precisely in the three-year age window.  I'd like this one to be fixed to basically increase it starting at 62 and not stopping it at 64.  

On our final installment of SECURE 2.0, we're going to address two of the provisions that are categorized as Revenue Generators to help pay for this and keep it as Revenue Neutral as possible. 

- Jason Grantz, QPA, QKC, QKA, AIFA