Proposed Expansion of the SECURE Act and What it Means for Retirement
On March 29th, 2022, a proposed expansion of the Setting Every Community Up for Retirement Enhancement Act of 2019 Act passed the House with a 414-5 vote. While the so-called SECURE Act 2.0 must still pass the Senate — which has its own proposals — and receive a signature of approval from President Biden, increases in retirement security may soon come our way.
Here are some of the proposed changes as of Spring 2022:
SECURE Act 2022 Eligibility
Currently, plans have the option to prevent employees that work under 1,000 hours from becoming eligible in a retirement plan. However, most notably, the SECURE Act 2.0 would allow part-time employees who work at least 500 hours of service for two consecutive years to become eligible to defer into the plan. Under the new proposal, the first group of long-term, part-time workers would become eligible for participation as of January 1, 2023.
The House bill would require newly established plans to implement automatic enrollment for all eligible employees at a rate of 3% of pay. Small businesses with 10 or fewer employees and startups with less than three years in business would be exempt from the mandate. The Senate version of the bill encourages, but does not require, auto-enrollment.
Higher Deferral Limits
To promote additional savings, the SECURE Act increases the cap on payroll contributions from 10 to 15 percent of an employee’s check for Safe Harbor small business 401(k)s. Employees can still opt out, but having the ability to escalate savings up to 15 percent can be a significant enticement for mid-career hires who are looking to catch up on retirement security.
Employer Tax Credit
Present law provides for a tax credit for small employers (100 or fewer employees) that adopt a retirement plan. The credit is equal to 50% of plan start-up costs and is capped between $500 and $5,000 depending on the size of the employer. The credit is available for the first 3 years of plan adoption. This provision would modify the existing credit by increasing the 50% rate to 75% in the case of an employer with 25 or fewer employees. The provision would be effective after 2023.
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Student Loan Repayment
An estimated 26% of young workers cannot afford to save for retirement because they’re paying off student loans. Under the proposed rule, students could repay their student loans and still earn their employer’s matching contribution.
Increased Savings for Older Americans
Americans aged 62 to 64 could make catch up contributions of $10,000 — up from $6,500 — with that savings considered Roth contributions, meaning they pay taxes now to enjoy tax-free capital gains at withdrawal time.
Also, required minimum distributions (RMDs) could be put off even longer. The 2019 SECURE Act increased the age of mandatory retirement withdrawal from 70.5 to 72. However, the House-passed bill increases the age of annual withdrawals to 73 in 2023, 74 in 2030, and 75 in 2033. The Senate proposal would raise the RMD to 75 by 2032 and waive RMDs for individuals with less than $100,000 in retirement savings and reduce the penalty for failing to take RMDs from 50 to 25%.
So-called “stretch IRAs” would no longer be allowed under the current bill, meaning that non-spouses inheriting a retirement account would need to take a full payout within 10 years of the account holder’s death, rather than stretching out disbursements over their lifetimes.
Simple, Affordable Retirement Plans for Your Small Business
Contact Ubiquity to see how our low-fee, customizable 401(k) retirement plans for your small business can help you take full advantage of Secure Act provisions. Set up your free consultation today and take the first steps toward meeting your retirement savings goals.