House Passes SECURE Act 2.0

A follow up the to Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) has recently overwhelmingly passed the House and has been referred to the Senate. The Securing a Strong Retirement Act of 2022, known as “SECURE 2.0,” builds on the SECURE Act. The proposed bill currently includes a wide range of modifications to the current retirement landscape. A few main provisions are discussed below.

The Act addresses the Required Minimum Distributions (RMD) age. The original SECURE Act raised the RMD age from 70 ½ to age 72 beginning in 2020. Under SECURE 2.0, the RMD age would increase to age 73 in 2022, age 74 in 2029, and age 75 in 2032.

The legislation would also modify the rules regarding catch-up contributions. Under current law, employees who have attained age 50 are permitted to make catch-up contributions to a retirement plan over the otherwise applicable limits. Beginning in 2024, participants aged 62 through 64 would be able to contribute up to $10,000 (indexed for cost-of-living) as catch-up contributions, an increase from the current limit of $6,500. Additionally, all catch-up contributions beginning in 2023 (other than those made to SEPs or SIMPLE IRAs) must be Roth contributions, which would presumably allow the government to collect income tax sooner than tax-deferred contributions.

The Act allows further penalty-free withdrawals from retirement plans for individuals in case of domestic abuse. Retirement plans may permit participants who self-certify that they experienced domestic abuse to withdraw up to $10,000, which would not be subject tax on early distributions. The participant would have the opportunity to repay the withdrawn money to the retirement plan over 3 years.

While the legislation has bipartisan support, it could still change significantly in the Senate. The House version, however, provides insight into what the final bill may require.