What The SECURE Act 2.0 Could Mean for Your Retirement Savings

On March 29, The House passed the bipartisan bill, dubbed “SECURE Act 2.0,” sending it to the Senate for approval. The bill builds on the Setting Every Community Up for Retirement Enhancement (SECURE) Act, signed into law in December 2019 to improve retirement and savings opportunities for workers.

Below are some of the key provisions from the SECURE Act 2.0.

Mandatory Automatic Enrollment/Escalation

One provision would make it easier for employees to participate in their company’s 401k and 403b plans. It would require that the employer automatically enroll the employees into the plan at a rate of 3% of salary, which would increase annually until the employee is contributing 10% of their pay. If the employee prefers not to participate, they can opt out or choose a different contribution amount.

There is an exception for small businesses (less than 10 employees), businesses that are less than 3 years old, church plans and governmental plans.

Allow Roth Matching Contributions

Another potential change that could help workers is that they would be able to elect that all or some of an employer match be applied to a Roth 401k. Roth accounts provide a tax benefit at retirement.

Expand Catch-Up Contributions

Individuals aged 62, 63 and 64 could make catch-up contributions of $10,000, up from $6,500. The bill would also increase the starting age for required minimum distributions to 73 in 2022, 74 in 2029 and 75 by 2032, up from the current 72.

Additional Provisions

Student loan borrowers could also benefit from the legislation. Essentially employers could match student loan payments, which would work much like a match on 401k contributions.

The legislation would also create a national database for Americans to reclaim their lost retirement accounts.

The Senate now has three options: send it for a vote, make changes (which involves sending it back to The House for approval before it heads to President Biden for a signature), or advance it with a companion bill. We may see The Senate take action sometime this year.