Secure Act 2.0


What is the SECURE Act 2.0?


The SECURE Act 2.0 was introduced by senators Richard Neal (D-MA) and Kevin Brady (R-TX) in 2020. It aims to build on the previous SECURE Act, which passed with tremendous bi-partisan support, even amongst a divided congress. While the SECURE Act 2.0 is still only proposed legislation, with the support the original SECURE Act garnered, it is likely that at some point the SECURE Act 2.0 will be passed into law. The following changes are some of the current proposals included in the bill:



Automatic Enrollment in a 401(k)


This proposal requires employers to provide new defined contribution plans or automatic enrollment in a 401(k). Enrollment would begin automatically with a 3% contribution rate that auto-escalates each year by 1% until reaching the maximum of 10%. By requiring companies to automatically enroll employees, the bill will ensure that no one misses out on saving for retirement.



New Credit for Businesses with 100 or Fewer Employees


The proposal included in the bill would provide a new credit to businesses with 100 or fewer employees to offset up to $1,000 in employer contributions for each employee, and it would gradually phase out over 5 years.



Receive Employer Match While Paying Down Student Loan Debt


The passing of the Secure Act 2.0 would allow you divert 401(k) contributions to pay down student loan debt while still receiving a match from your employer. For people who have held off on contributing to their 401(k) due to high student loan obligation, this option would allow them to continue doing so while beginning to save for retirement. For many young people who are looking to start saving for retirement, student debt obligations can either delay or slow down their rate of savings.



Increase to the RMD Age


The proposed legislation would increase in the RMD age from 72 to 75. Congress recently just passed legislation to increase the RMD age from 70 ½ to 72 with the original SECURE Act, but they realized that some people may need more time before tapping into their retirement accounts. In addition to the increase in the RMD age, the proposal also aims to eliminate RMD’s from retirement accounts with balances less than $100,000.



Catch-up Contributions


Proposed legislation in the act would increase the current catch up contribution limits. Currently, if you’re 50 or older, catch up contributions for 401(k) and SIMPLE plan participants are $6,500 and $3,000, respectively. The proposal would allow older workers to contribute even more, by increasing the limit to $10,000 for 401(k) plans and $5,000 for SIMPLE plan participants, for those aged 60 and older. This change would allow people who feel that they are not quite at their retirement goal to increase savings to meet their financial needs during retirement.



Boosted Savers Credit


Proposed changes to the Saver’s Credit – Currently you can receive a credit for retirement contributions worth between 10% and 50% of the amount you save, depending on income levels. The proposal would improve the savers credit by creating a single tier of 50%, bringing the maximum annual credit from $1,000 to $1,500, and would also raise the amount of income you can make while still qualifying. Increasing and providing an incentive to lower and middle income citizens to save for retirement should encourage more people to start saving for retirement.



When can we expect the changes to take effect?


Currently the Secure Act 2.0 is only proposed legislation, and a concrete timeline can not be determined at this time. The backers of the bill hope that the legislation will land on the Presidents desk sometime in early 2021, given the immense popularity of the first SECURE Act, we can expect this legislation to pass through both chambers of congress with relative ease.