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What Do Midterm Results Mean for the Secure Act 2.0 and the Future of RMDs and Your Retirement?


With the midterm elections out of the way, the lame-duck Congress will get another chance to pass three different, wide-ranging bills related to retirement that would allow workers to save more money in retirement accounts and hold on to it longer before taking required withdrawals.

Congressional staffers have been working throughout the session to combine the three bills into a package under the name of the Secure Act 2.0. Published reports quote Washington insiders who expect the final combined measure would be passed during December, when it could be attached to vital legislation, such as the budget bill that would replace the continuing budget resolution that expires on Dec. 16.

To plan accordingly for how the Secure Act 2.0 might affect you in this changing political climate, consider matching with a financial advisor for free.

Inside the Secure Act 2.0

The previously passed measures are the Securing a Strong Retirement Act (H.R.2954) in the House and two measures from the Senate, the Retirement Improvement and Savings Enhancement to Supplement Healthy Investments for the Nest Egg (Rise and Shine) Act (S.4353) and the Enhancing American Retirement Now (EARN) Act (S.4808).

The three separate measures overlap quite a bit, with at least two of the bills sharing nearly 40 different specific changes. In other ways, the bills address different retirement components in different ways, such as specifics on changes to required minimum distributions and how to encourage employers to automatically enroll employees in 401(k) retirement savings plans.

Major components of the legislation include:

Expanded catch-up contributions: Workers 50 years old and older can put an extra $6,500 into their 401(k) as of this year, moving to an extra $7,500 next year. The House bill would raise to catch-up limit to $10,000 for workers who are 62, 63 or 64 years old, while the Senate version applies to workers from 60 to 63 years old. The limit for SIMPLE IRAs would increase from $3,000 to $5,000.

Required withdrawals: Anyone with a traditional Individual Retirement Account, 401(k) or similar workplace plan is required to start taking required minimum withdrawals (RMDs) once they turn 72, based on the life expectancy of the account holder and any spouse, or face a 50% penalty of the required amount. That age limit would rise to 73 starting in 2022, 74 in 2029 and to 75 starting in 2032 under the House legislation or 2032 in the Senate version. Both versions cut the penalty to 25% and, in some cases, 10%. The Senate measure also would eliminate RMDs for Roth 401(k) accounts.

Contributions for student loan debtors: Employers now can make matching contributions to 401(k)s and similar workplace accounts based on employee contributions. The new retirement legislation would allow employers to make contributions to 401(k) and similar workplace plans based on an employee’s student loan payments even if the employee isn’t contributing to the plan.

Lost and found: According to one estimate, there are 25 million 401(k) accounts that workers have left behind when they changed employers that are considered forgotten, with balances totaling $1.35 trillion in 2021. Both chambers would create a national “lost and found” mechanism workers could use to find old accounts. The legislation also would raise the limit where employers can roll the account balance out of the company 401(k) plan and into an IRA, from less than $5,000 to balances of less than $7,000.

Other considerations in the three bills include new rules for taking 401(k) emergency withdrawals, creating employer-sponsored emergency funds, increasing access to the saver’s tax credit for lower-income workers, increasing 401(k) auto-enrolled contributions and make part-time workers eligible for 401(k) accounts earlier than the current law allows.

As it stands, the Senate will have to pass this legislation in order to be passed on to President Biden’s desk to be signed into law.

Bottom Line

In the wake of the midterm elections, Congressional is looking to bring the Secure Act 2.0 across the legislative goal line in December before the next class in Congress begins next year. Should the Secure Act 2.0 pass in the Senate and get signed into law by President Biden, there will be serious implications for your retirement that should discuss with a financial advisor.

Retirement Saving Tips

  • Whether it’s picking investments for an IRA or deciding whether an annuity is right for you, a financial advisor can help you save for retirement and create a plan to meet your future needs. SmartAsset’s free tool can match you with up to three advisors in your area in as little as five minutes. If you’re ready to be paired with a local advisor, get started now.
  • A recent survey found that 401(k) participants now believe they need $1.9 million saved for retirement. SmartAsset’s retirement and 401(k) calculators can help you assess whether you’re on track to meet your savings goals.

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