How the SECURE Act 2.0 Could Affect Retirement Planning
Last month, our leaders in Washington did something that felt almost unprecedented nowadays: they agreed on something!
The Sunshine Protection Act passed the Senate unanimously. If it gets passed by the House and signed by President Biden, turning our clocks back and forth will be a thing of the past and daylight savings time will be permanent starting in 2023.
All kidding aside, there is a slightly more pressing issue that's drawn broad bipartisan support in recent years: revamping retirement planning. In 2019, the Setting Every Community Up for Retirement Enhancement (SECURE) Act passed the House 417–3 and the Senate 71–23. Its pending sequel, the Securing a Strong Retirement Act, aka SECURE Act 2.0, just passed 414-5 in the House. Those majorities should tell you just how serious the government is about encouraging folks to take more ownership over their long-term financial planning.
On today's show, we (briefly) debate the pros and cons of leaving our clocks alone before digging into the details of SECURE Act 2.0 that could affect retirement if this new bill is passed.
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1. Auto enroll in the future.
SECURE Act 2.0 would require employers who offer 401(k) or 403(b) plans to auto enroll new employees in those plans at a rate of 3% of their salaries. The thinking here is that people are less likely to unenroll in a retirement plan -- which they will be allowed to do -- than they are to go through the hassle of enrolling in the first place. Then, employees' contribution rates would increase by 1% per year until they hit 10%.
One interesting wrinkle in SECURE Act 2.0 is creating an employer-match contribution into retirement accounts for student loan payments. This would allow young workers who are trying to pay down their debts to start growing their wealth at the same time.
Personally, I'm for anything that encourages young workers to start thinking about their financial futures as soon as possible. However, I'm slightly less enthusiastic about the SECURE Act 2.0 proposal that would allow employers to use things like gift cards to reward workers who do stay enrolled in the company's retirement plan. To me I don’t think the answer is incentives, I think it's financial literacy.
Folks need to understand that as health care, exercise, nutrition, and standard of living continue to improve, so too does longevity. An employer-match retirement plan is, essentially, free money that's going to compound, grow, and help support you for decades once you stop working. Employers should be putting more effort into educating their people about what a powerful tool these plans can be, and encouraging young professionals to work with an advisor who is going to help them plan for a second or even third act in retirement.
2. More options for older workers.
The original SECURE Act raised the age at which seniors have to take required minimum distributions (RMDs) from their retirement accounts from 70 1/2 to 72. SECURE Act 2.0 would give seniors even more time to keep working and growing their nest eggs by gradually raising the RMD age to 75 by January of 2033. Three additional years may not seem like all that much but pushing RMDs out to 75 could create some additional planning opportunities, such as Roth IRA conversions, that can limit your nest egg's tax exposure.
The new law would also increase the amount of catch-up contributions workers can make to 401(k) and 403(b) accounts, indexed to inflation, and increase the "savers tax credit" for low-to-middle-class earners who are making contributions into retirement accounts. Seniors who make qualified charitable distributions (QCDs) from their IRAs would also see the maximum allowed size of those gifts grow with inflation as well.
3. Live, learn, and plan.
If keeping track of sliding scales, inflation rates, and new tax credits doesn't sound like your cup of tea ... well, that's one of the many benefits of working with a financial advisor!
Financial education is one of our core values at Keen Wealth. But we don't expect our podcast, blogs, webinars, and educational events to turn anyone into a Financial Planner or CPA. My hope is that by demystifying financial planning, folks will feel more confident in the plans they’re working on with their advisors, particularly as they approach retirement. That confidence can be the difference between a person living in constant financial fear, and a person living their life to the fullest.
If you’re feeling overwhelmed by all the recent legislative changes and proposals around retirement, call up my team at Keen Wealth and let us help you simplify this process and strengthen your plan.
About Bill
Bill Keen is a CHARTERED RETIREMENT PLANNING COUNSELOR℠ and independent financial advisor with more than 25 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he specializes in providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.
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