Saving for retirement is currently a major challenge for most Americans. Lawmakers are trying to change that.
A proposal called the Securing A Strong Retirement Act of 2021 has received bipartisan support. It would make big shifts in the rules affecting workers saving for their later years. It would also change some rules for current retirees.
While the future of the Securing a Strong Retirement Act is uncertain, it passed the House Ways and Means Committee by unanimous vote and has supporters on both sides of the aisle. Lawmakers have also worked together to reform retirement account rules in the past, most notably with the Secure Act, which was signed into law in December of 2019. This new proposal has also been referred to as Secure 2.0.
So, how would this legislation change the rules for retirement accounts if it were to pass? Here's what you need to know.
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Six key ways the Securing a Strong Retirement Act would change the rules for retirement accounts
Secure 2.0 would make a few major changes to current retirement account rules. The Act would:
- Enroll more workers in retirement accounts automatically. Under the law, employers offering 401(k) or 403(k) plans would enroll employees automatically in those plans unless the workers opted out. The initial contribution automatically selected for employees would range between 3% and 10% of pre-tax earnings. If employers opted for a lower automatic contribution amount to start, it would increase by 1% annually until enrolled employees were saving 10% of their income for retirement.
- Raise the catch-up contribution limit. Employees over the age of 50 are allowed to make catch-up contributions to their 401(k) and IRA accounts. In 2022, these catch-up contributions equal $6,500 for 401(k)s and $1,000 for IRAs. The Act would increase the amount of catch-up contributions to $10,000 for workers between the ages of 62 and 64, and it would index this amount to inflation. This would allow America's oldest workers to score much bigger tax breaks to help them increase their retirement account balances.
- Index the annual catch-up contribution limit to inflation for all workers. The catch-up contribution limit is not currently indexed to inflation, which is why it did not increase from 2021 to 2022 even though inflation is surging. The Act would change this, ensuring that the amount of tax-advantaged contributions employees can make goes up when prices rise.
- Provide extra help for workers with student loans. Under the Act, when employees make a student loan payment, employers would be allowed to match it by making an equivalent contribution to their retirement accounts. The goal of this is to make retirement savings easier for those who can't afford to contribute to their 401(k) because of their student debt.
- Change the age when RMDs begin. Currently, workers with a 401(k) or IRA must begin taking Required Minimum Distributions from their accounts beginning at age 72. This means they must withdraw a certain amount of money each year as the IRS mandates. The Act would change when RMDs begin. Under the Act, seniors initially wouldn't have to take RMDs until age 73. Beginning in 2029, the required age for RMDs would be pushed back to 74, and it would be pushed back further to 75 in 2032. This would provide more flexibility for retirees in accessing their funds.
- Reduce the penalty for not taking RMDs. If retirees do not take RMDs as required, they are currently subject to a penalty equaling 50% of the amount they should've withdrawn. This Act would lessen this severe penalty, reducing the penalty to 25% or 10% if retirees corrected their error in a timely fashion.
Both current retirees and future retirees would likely be helped by these changes, so those interested in seeing the Securing a Strong Retirement Act pass should consider contacting their lawmakers to make their voices heard.
