SECURE Act 2.0 Promises More Ways to Save
The Securing a Strong Retirement Act of 2022 looks likely to become law after passing the House in a resounding 414-5 vote. More familiarly known as the SECURE Act 2.0, the legislation will alter the existing retirement savings landscape in many of the same ways the original SECURE Act did in 2019.
One notable proposal gradually changes the begin date for Required Minimum Distributions to age 75 by 2032, which was changed in the original SECURE ACT to 72 from 70.
The later age gives workers more years to earn money before realizing potentially large taxable income from distributions. Paired with Social Security, those distributions historically could push workers into a higher tax bracket, making work less financially rewarding.
The later age change could also help some earlier retirees. The later distribution start date would give more flexibility for low or no earning retirees to make advantageous tax moves, like realizing capital gains or making Roth conversions in low tax years.
Employer contributions would also gain the flexibility to be made as Roth, versus the current pre-tax-only system. Roth contributions can be attractive for those temporarily in lower income tax brackets or those that are unlikely to ever see a lower tax bracket. The latter may become more prevalent for the highest earners working through age 75, assuming they resist the charm of Incline Village.
The new rules would also help those in need of a nudge to get started saving for retirement by mandating automatic enrollment for 401(k) participants and offering small businesses new incentives to set up retirement plans.
David Born can be reached at firstname.lastname@example.org.