Congress is working on making changes to retirement plans. I can’t say this about a lot of tax bills, but I like a lot of the changes that are in this bill. It’s currently called the SECURE Act 2.0. So let’s talk about it.
THE FIRST CHANGE IS AUTOMATIC ENROLLMENT RIGHT?
- Yes, any new plans established after the bill takes effect would be required to enroll employees at a rate of 3%.
- Not only this but would also be required to increase the percentage by 1% each year until the employee has 10% put away.
- Employees would be able to opt out, but studies have found that many do not.
- There would be an exception for small businesses with 10 or fewer employees and certain startup companies.
THE LEGISLATION WOULD ALSO CHANGE HOW THE EMPLOYER MATCH WORKS, RIGHT?
- Right now, an employer match cannot go into the Roth bucket. It has to go into the tax deductible bucket.
- Under this change, employer matching contributions could go into the employee’s Roth bucket.
- If an employee elected to have the match go into the Roth bucket, they would have taxable income to the extent of the match.
IT ALSO INCREASES THE AGE WHERE PEOPLE HAVE TO TAKE DISTRIBUTIONS?
- It does, the IRS does not allow people to keep funds in their retirement accounts forever. They need to start taking it out when they reach a certain age.
- Not long ago the minimum required distribution age was 70 ½.
- Then it was age 72
- This legislation would move the age to 73 and eventually up to age 75.
- As people live longer, I think this option makes sense.
IT ALSO MAKES MORE PEOPLE ELIGIBLE TO PARTICIPATE?
- This legislation does make long-term part time employees eligible if they have been with the company for two years or more.
IT DOES OTHER THING TOO.
- Creates a national database to find lost retirement accounts
- Allows for 403(b) plans to have more features of 401(k) plans. 403(b) plans are offered by many government agencies and non-profits
- Adds some investment options such as lifetime income annuities.
If passed, this will give employers and employees additional options to help secure people’s retirements. And as we discussed in the past, anything that can be done to help secure people’s future is a good thing.
I don’t talk about this enough, but you can hear this replayed on YouTube and other social media. My co-worker Kyle Hundt also does a tax tip every Tuesday. Sign up for our social media to get all that great content also!
As a partner, I have thorough experience providing tax services to individuals, privately held businesses, nonprofit entities and estates and trusts. I also provide compilation and review services.
