Hello my name is Chad Taylor Managing Partner with MDT Financial Advisors here in Houston, Texas. 

Back in 2019, Congress passed a law known as the Setting Every Community Up for Retirement (SECURE) Act.  The law made important changes to IRAs and 401(k)s, among other things, and was designed to help more Americans save for retirement. 

America loves sequels, so now, three years later, Congress has another new bill to consider.  This one widens the scope of several provisions from the original law.  It’s officially called the Securing a Strong Retirement Act.  Since that’s not as catchy of an acronym, you can think of it as “SECURE Act 2.0.”  Like its predecessor, the bill has important ramifications for people’s retirement savings.  In this letter, I want to give you a preview of what the bill contains.

Before I do that, though, there are a few important things to note.  The House of Representatives passed this new bill on March 29, which means it now heads to the Senate.  Several things could happen there.  One, the Senate could pass the bill as is.  Or, they could make significant changes to it, requiring a reconciliation between the two chambers.  And of course, President Biden would still need to sign the bill for it to become law.  As a result, it’s impossible to tell what the final bill will look like.  That said, the House passed SECURE Act 2.0 with strong bipartisan support¹, and it’s expected the Senate will eventually do the same.  As your financial advisor, it’s my job to get familiar with the bill now so I can help you prepare for the changes it will bring.

Here are some of the most significant:

Changes to IRAs²

For retirees, one major change the bill makes is extending the time people can wait before making withdrawals from traditional IRAs.  Currently, retirees must begin making withdrawals – called required minimum distributions – by age 72.  (This itself was one of the changes brought about by the original SECURE Act, which upped the age from 70½.)    

Under Act 2.0, the age increases as follows:

In year…	The age at which you must take RMDs will be:
2023	73
2029	74
2032	75

This means retirees will have an extra 12 months – and eventually, even longer – to enjoy the tax advantages that come with IRAs. 

Changes to Catch-Up Contributions²

Under current law, employees aged fifty or older can make extra “catch-up” contributions of up to $6,500 per year to their 401(k).  Act 2.0 would retain this limit for most people but raise the amount up to $10,000 for people ages sixty-two to sixty-four.  (This change begins in 2023.) 

For people who couldn’t start saving money until later in life, this is an important change.  It helps pre-retirees catch up to the level they should be at to achieve their desired lifestyle.

Act 2.0 makes another important change.  Currently, catch-up contributions can be made on an either pre- or after-tax basis.  This bill would require all such contributions to be made after-tax.  This means the money contributed is taxed before it goes into your account rather than after it’s withdrawn in retirement. 

Changes for Businesses (and People with Student Loans) ²

The bill also comes with some important provisions for businesses. 

First, employers that provide defined contribution plans – like 401(k)s – will need to automatically enroll new employees.  (Employees, of course, can choose to opt out if they want to.)  Initially, at least 3% of each employee’s pay must be contributed, rising by 1% each year up to at least 10%, but not more than 15%.  These contributions are pre-tax, and of course, employees can choose a different amount if they want. 

Small businesses with ten or fewer employees are exempt.  So too are employers that have been in business for less than three years. 

The bill also helps workers paying off student loans.  Anyone who has ever had college debt knows what a drain such loans can be on your finances.  In fact, many such people have little to no ability to save for retirement.  Under Act 2.0, employers can make matching contributions to a 401(k) or 403(b) based on the employee’s student loan payments.  In other words, this enables workers to still save for retirement even while paying off their debt! 

Like most bills, SECURE Act 2.0 is long and comes with a host of other provisions.  This letter only scratches the surface.  But now you know some of the key changes that are likely to affect the broadest number of people. 

In the meantime, my team and I have already begun…

Planning Ahead

As you’ve probably guessed, I’ve sent this letter to all my clients.  Some are older, some younger.  Some are nearing retirement, some are far away, and some already there.  That’s because, while no single provision will affect everyone, almost everyone will be affected in some way.    

As I mentioned, this bill has not yet become law, and it’s uncertain when the Senate will vote on it.  That said, it’s important that we start planning ahead.  If you have any questions about the bill, please let me know.  Otherwise, I’ll make a point to go over any provisions that affect you the next time we have a review. 

In the meantime, my team and I will keep a close eye on the bill as it makes its way through Congress.  As soon as the situation is clearer, I will let you know.  As always, please reach out if there’s ever anything I can do for you.  Have a great month!