At Credent Wealth Management, our goal is to keep you informed about relevant policies that could impact your financial plan. As with our other Credent Connect releases, these highlights will tend to focus on personal financial planning topics.
The SECURE Act
In late 2019, the SECURE Act was passed, and it put in place sweeping changes across the retirement and financial planning landscape. The headlines were short-lived since they were quickly taken over by COVID-19 headlines. Most investors are now familiar with the implications of the SECURE Act such as moving the RMD (Required Minimum Distribution) age to 72 and removing the beloved beneficiary IRA stretch.
A year later, the Securing a Strong Retirement Act, dubbed Secure Act 2.0, has quietly made its way from the House Ways and Means Committee, where it received bipartisan support, and is now headed to the House floor.
Securing a Strong Retirement Act (SSRA)
As a part of our Credent Connect, we want to highlight a few of the provisions currently in the bill and some planning topics surrounding them. At this time, legislation has not passed, but we are proactively monitoring the movement on your behalf.
Further increase in age for required mandatory distributions (RMDs)
After the passage of the original SECURE Act, most IRA investors are required to begin taking RMDs from their retirement accounts at age 72. Starting on January 1, 2022, this section proposes a gradual increase from 72 to 75 by January 1, 2032.
Increase in IRA catch-up limit
Under current law, investors over the age of 50 are allowed to make a $1,000 catch-up contribution to their IRA, in addition to the normal allowable contribution ($6,000 in 2021). Although the normal contribution is indexed for inflation, the catch-up is not. This section allows for the catch-up contribution to be indexed for inflation as well. Furthermore, a separate section allows for 401(k) and 403(b) catch-up amounts to be increased to $10,000 for those who have attained age 62, 63, or 64. Participants in SIMPLE plans would be allowed to contribute an additional $5,000. These catch-ups are in addition to the regular annual contribution limit.
Payments to student loans counted as deferrals for matching contributions
This section allows for an employee to make payments against his or her education loans while the employer continues to make matching retirement contributions to the employee’s retirement account (401(k) plan, 403(b) plan, or SIMPLE IRA). A loan payment is defined as debt incurred by the participant solely to pay for qualified higher education expenses of the employee. This allows employees to focus on repaying their student loans without missing out on available matching contributions for retirement plans.
Designation of employer matching contributions as Roth
This section allows for 401(k) and 403(b) retirement plans to make matching contributions on an after-tax Roth basis, rather than only pre-tax as is currently the case.
After-tax (Roth) contributions for SIMPLE and SEP IRA plans
An adjustment would allow for SIMPLE IRA plans to allow employees to contribute on a Roth basis. Additionally, this section allows for the ability to treat SEP contributions as Roth.
What happens now?
Although it is not clear when the bill may be arranged for a vote on the House floor, it has been widely reported that almost every lawmaker on the Ways and Means committee praised the bill. We will continue to monitor this bill’s progress as it moves through the legislative body.
Please reach out to your Credent Wealth Management team if you would like to discuss these proposals and how they may affect your personal or business financial plan in more detail.
Investment advice offered through CX InstitutionalTM, a registered investment advisor. The opinions voiced in this email are for general information only and are not intended to provide specific advice or recommendations for any individual.