Just before Christmas, on the eve of the end of Democratic control of the U.S. House of Representatives, the legislative body passed a $1.65 trillion omnibus spending bill that averted a government shutdown.
Within that bill, which the president signed a week later, just before year-end, was a package of retirement-planning revisions known as the SECURE Act 2.0.
The moniker is an homage to the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019, which was designed to help working Americans save for retirement. For instance, it made it easier for 401(k) plans to offer annuities that feature guaranteed lifetime retirement income.
The new SECURE Act takes many of these measures even farther.
Before the ink was dry, news of the coming revisions to the retirement system received praise from much of the financial community.
“Millions of Americans could soon see more opportunities for retirement saving and income as a result,” Linda K. Stone, senior pension fellow at the American Academy of Actuaries, a Washington, D.C.-based professional association, said in a press release.
“This landmark legislation makes it easier for participants to save for their future by broadening Americans’ access to the retirement savings system,” added Vanguard’s John James, a managing director and head of the institutional investor group, in a statement.
Greg Wilson, a partner and head of institutional client business at Goldman Sachs Ayco Personal Financial Management, a unit of the investment bank that’s involved in company-sponsored financial planning benefits, said in a statement that the new act will “help Americans better prepare for a comfortable retirement.”
He called the updated regulations “key changes that can help working Americans overcome expected and unexpected obstacles to saving.”
Like its predecessor, SECURE Act 2.0 contains many parts. Here are a few of the primary points:
- It requires many 401(k)s to automatically enroll employees, starting in 2025, at a minimum of 3% of pay. This comes at a time when surveys show that many workers—especially low-wage and minority workers—often don’t have employer-sponsored retirement savings plans. (One recent study found that only 60% of employees with total household annual incomes of less than $50,000 are even offered a 401(k) at work.)
- It makes part-time workers eligible for employer-sponsored retirement plans after two years of part-time employment, instead of the three years previously required, starting in 2025.
- It guarantees low- and moderate-wage employees who save in an employer-sponsored retirement plan a matching contribution from the federal government of up to $1,000 annually per person, beginning in 2027.
- It allows people age 50 and up to add an extra $7,500 per year to their retirement accounts. Those between 60 and 63 will be able to contribute at least $11,250 annually beginning in 2025.
- It incrementally raises the required minimum distribution (RMD) age at which you must withdraw a percentage of your tax-deferred retirement accounts from 72 to 75, by 2033.
- It allows people with Roth 401(k)s, which are tax-free retirement savings vehicles, to skip RMDs altogether, beginning in 2024.
- It allows rollovers of certain unused 529 college savings plans into Roth IRAs. The 529 accounts must be at least 15 years old, and the amount is limited to $35,000.
- It amendments the rules governing qualified longevity annuity contracts (QLACs), which are a type of deferred annuity that’s funded from a retirement account and is exempt from RMDs until distributions are taken. Under the old rules, you could only use 25% of a retirement account or $135,000—whichever was less—for a QLAC. The new rule removes the 25% limit and sets a maximum of $200,000 that can be used from a retirement account to buy a QLAC.
- It enables exchange traded funds (ETFs), which are a popular type of security that typically tracks a particular index, to be available within variable annuities.