Changes Are Coming to the Way We Save for Retirement

Retirement security is a fundamental part of the American Dream. For generations, workers have contributed to different types of retirement accounts with the expectation that these programs will be there for them when they retire. They're excellent tools for building retirement income, and you've probably been watching yours closely. But what does SECURE 2.0 - Congress' most discussed retirement agenda - have in store for you? And what are the potential reforms and other effects of it that you must prepare for?

Let us answer all your questions and draw up the best retirement for you.

What is Secure 2.0?

The Securing a Strong Retirement Act of 2022 (affectionately referred to as SECURE 2.0 due to the fact that it builds upon the SECURE Act of 2019) is a set of legislative proposals to improve retirement security in the United States. Such improvements would be reflected in 401(k)s, 403(b)s, and retirement savings accounts.

However, there are two versions of SECURE 2.0 – the House version and the Senate version. The House version passed with overwhelming bipartisan support on March 29th of this year. In June, the Senate effectively did the same by voting unanimously to move related legislation forward in two of its committees. This is significant because if the SECURE Act 2.0 is to ever get the OK from Congress and be made law, the Senate and the House will be forced to iron out the differences between their two into one cohesive set of legislation.

What Are the SECURE Act 2.0 Retirement Reforms?

The related legislation the Senate Finance Committee has approved, thereby effectively floating SECURE 2.0 along with it, is a set of proposed reforms to the US retirement system. Here are the possible reforms you should know about:

  • Increased credits for small businesses
  • Automatic enrollment in plans
  • Expanded saver's credit
  • Generous catch-up limit
  • Access to retirement plans for part-time workers
  • Increased required minimum distribution age
  • Enhanced 403(b)
  • Student loan payments as elective deferrals

The highlight of these changes is raising catch-up contribution limits. The catch-up contribution provisions would increase from $6,500 to $10,000 for savers ages 62-64. The proposals also call for treating the catch-ups as post-tax. This means your catch-ups will no longer be pre-tax contributions.

How Will the Retirement Reforms Affect You?

The retirement reforms might have a significant impact on your retirement savings. Here’s some of what you need to know about the potential changes coming down the pipeline:

The proposed changes will make it easier for you to save for retirement by getting automatically enrolled in your employer's retirement plan. The automatic enrollment will help more workers save for retirement, especially those who are just starting their careers.

The retirement reforms will also expand the saver's credit, which is a tax credit for low- and moderate-income workers who contribute to retirement accounts.

The proposed changes will raise the required minimum distribution (RMD) age even further. The original SECURE Act in 2019 increased the age from 70.5 to 72 for RMDs. Due to changes made by the original SECURE Act in 2019, if your 70th birthday was July 1, 2019, or later, you do not have to take withdrawals until you reach age 72. The SECURE Act 2.0 proposes increasing the threshold to age 73 next year, and eventually to age 75. This means you can delay taking distributions from your retirement accounts and let your money grow for longer.

The retirement reforms will make it easier for part-time workers to save for retirement by allowing them to participate in their employer's retirement plan.

Knowing what to expect once the SECURE 2.0 retirement reforms become law is vital. These changes will significantly impact your retirement savings, and your retirement planning should account for these changes.

Now that you have a preview of what's coming, you can start preparing for the SECURE 2.0 retirement reforms. After all, retirement is something you're planning for your entire life. Your years of hard work deserve a secure and comfortable retirement, and SECURE 2.0 is designed to help get you there.

Watch for part two of this 2-part GJM blog series on SECURE 2.0, when we’ll take a closer look at the impact on businesses and their retirement plans.

GJM’s Molly Wolf contributed this article. Molly has over 15 years of experience specializing in employee benefit plans and is an affiliate member of the American Society of Pension professionals & Actuaries (ASPPA). She consults with clients on benefit plan design, compliance testing, payroll integration and reconciliation. She also serves as a third-party plan administrator.

Established in 1996, Gilmore Jasion Mahler, LTD (GJM) is the largest public accounting firm in Northwest Ohio, with offices in Maumee and Findlay. Locally owned, GJM offers cloud-based accounting and provides comprehensive services including assurance, business & transaction advisory, healthcare management advisory, outsourced accounting, and risk advisory. The firm’s professionals specialize in industries including construction & real estate, healthcare, manufacturing & distribution, nonprofit, private equity and utilities.  

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