Far-reaching retirement legislation loaded with new opportunities for investors and advisors was unanimously passed by the House Ways and MeansCommittee today and will now head to the full House for a vote.
The bipartisan “Securing a Strong Retirement Act of 2021,” dubbed SECURE 2.0, was reintroduced by Ways and Means Committee Chairman Richard E. Neal (D-Ma.) and Rep. Kevin Brady (R-Texas).
“It’s a really good day for the American family and very good day for the House Ways and Means Committee,” Neal said after committee passage. The bill will cost $27 billion over 10 years, with some of that offset by eliminating the extended savers credit and requiring or allowing retirement plan and IRA catch-up contributions for older investors be made on an after-tax Roth basis, Melissa Kahn, managing director for the defined contribution team at State Street Global Advisors, told Financial Advisor magazine.
By introducing the Roth options for retirements plans and IRAs, “the government is hoping to collect taxes now, rather than waiting,” Kahn said.
The bill would allow catch-up contributions for investors age 50 and over to Simple and SEPs Plans to be made on a Roth basis, while catch-up contributions to defined contribution plans will be required to be made on a Roth basis. Employers will also be able to make matching contributions on a Roth basis, Kahn said.
If the bill passes as expected, individuals will be able to make higher catch-up contributions to qualified retirements plans, which will be tied to the cost-of-living index. Simple plan participants who are age 62, but not yet age 65, would be able to contribute an additional $10,000 to a plan while qualifying individuals with Simple Plans could contribute an additional $5,000 beginning in 2021.
The bill would also raise the age for required minimum distributions. Raising the age was seen as a big revenue drain, which is why lawmakers decided to stagger the RMD age increase from 72 to 75 in a staggered approach, Kahn added.
The bill creates a tiered RMD age requirement based on an individual’s birth date. So those who turn age 72 after December 31, 2021, and age 73 before January 1, 2029, would be able to delay their RMDs to 73.
"In the case of an individual who attains age 73 after December 31, 2028, and age 74 before January 1, 2032, the applicable age is 74. In the case of an individual who attains age 74 after December 31, 2031, the applicable age is 75,” the bill states.
Kahn said the RMD age increase “will be good for financial advisors who work with small business owners, giving them the ability to continue to work and make contributions before they have to start drawing down their retirement balances.”