Secure 2.0: Here are 5 major ways it could impact your retirement

Americans could be prepared for a major retirement review with the 2022 Strong Retirement Insurance Act, also known as the Secure 2.0 bill. The proposal, which was approved by the House on March 29 with broad bipartisan support, comes as almost half of older workers have no retirement savings.

Of course, Secure 2.0 has not yet been approved by the Senate, but the plan has so far garnered the support of both Democrats and Republicans, as well as experts in retirement and advocacy groups such as the American Society of Pension Professionals and Actuaries.

The bill has the potential to address some of the retirement issues facing U.S. workers, including their lack of preparation for retirement. And workers are clearly concerned about their ability to manage retirement financially, with a new Allianz Life study finding that more than 6 in 10 non-retirees fear losing more money than death.

“This bill is designed for both retirees and retirees,” said Kelly LaVigne, Allianz Life’s vice president of consumer information. “It’s not like Washington is singing kumbaya, but there’s a lot of support for reviewing retirement savings.”

Here are 5 of the most significant ways the bill would affect retirement savings, according to experts.

Automatic registration in retirement plans

One of the drawbacks of the current retirement system is that workers often do not participate in employer-sponsored retirement programs, even if they have access to them. The bill seeks to address this issue by making automatic enrollment mandatory for companies with more than 11 employees.

Under the proposal, workers would initially automatically contribute at least 3% of their salary to the employer’s retirement plans. Each year after that, the amount of the contribution would increase by 1 percentage point, with a limit of 10%. Employees could choose not to make contributions and current retirement plans are adopted, according to a summary of the House Media and Means Committee bill.

Currently, about 6 out of 10 employers offer automatic sign-up, and it has been shown to be a powerful tool for saving people money. More than 90% of new hires participate in retirement plans in companies where enrollment is automatic, compared to 28% in companies where contributions are voluntary, Vanguard found in a 2021 study.

“Automatic registration is important,” LaVigne noted. “You can get used to saving. You’ve never lost your money because you’ve never spent it.”

Allow early retirees to store more money

Pre-retirees, or older workers who are just a few years away from retirement, could overburden their retirement savings with Secure 2.0.

The bill would allow people aged 62, 63 and 64 to increase their recovery contributions to $ 10,000 a year, compared to the current $ 6,500. This could be a recognition that many workers in their 50s are financially constrained by other financial obligations, LaVigne said.

“When you’re 50, you might still be putting kids in college, and that will allow us to invest in future retirement,” he noted.

Delay mandatory withdrawals up to 75 years

One of the most important changes would be the Minimum Required Distribution Act, or RMD, which is the amount of money retirees are required to withdraw each year.

The Secure 2.0 bill would delay RMDs until retirees turn 75, instead of the current age of 72 under the law. This could give retirees more flexibility to decide when they want to withdraw their retirement assets, experts say.

Of course, this is likely to be more of a problem for wealthier retirees who have significant assets reserved under IRA, 401 (k) or other plans. But it could still give retirees of all kinds more control over when they withdraw their assets.

Employers could match student loan payments

This is a little trickier, but it could help workers struggling to save for retirement because of student loan payments.

Under the plan, employers could treat their student loan payments as elective deferrals to their retirement accounts. This is important because employers could make a contribution equal to their 401 (k).

The new provision “is intended to help employees who may not be able to save for retirement because they are overwhelmed by student debt and are therefore losing the counterpart contributions available for retirement plans,” the Media Committee noted. and Means of the House.

Employers could contribute to the Roth IRA

The Roth IRA was designed to help middle-class workers save for retirement by allowing them to save money after taxes, in contrast to the traditional 401 (k) and IRAs that rely on pre-tax contributions. . The advantage of a Roth IRA is that retirees can withdraw tax-free money, since they paid taxes on the money years before.

An important change would be to allow employers to put contributions corresponding to an employee’s Roth IRA. Younger workers can store after-tax money in a Roth while their tax bracket is lower, which gives them an advantage by the time they reach retirement and can be at a tax level. higher. But many older workers can also enjoy the tax benefits, especially if they expect to change tax plots or tax returns.

“That’s a big benefit for just about anyone,” LaVigne noted.

In:
• 401k