More retirement reforms are in the works

While we are still waiting for the IRS to issue final regulations for the SECURE (Setting Every Community Up for Retirement Enhancement) Act, there are indications that Congress may soon act on a “SECURE Act 2.0.”

The earlier SECURE Act, signed into law in 2019, brought notable changes that included moving the age for taking required minimum distributions from 70 to 72 and instituting a 10-year rule (in most situations) for having to empty an inherited retirement account.

Paul Richman, the chief government and political affairs officer at the Insured Retirement Institute (IRI), believes SECURE 2.0 legislation will soon be adopted. IRI is a not-for-profit organization representing the insured retirement income industry, financial advisers and consumers.

“House and Senate committee leaders negotiating the final SECURE 2.0 bill have recently publicly expressed confidence and optimism that whatever outstanding issues remain will be worked out,” said Richman.

SECURE Act 2.0 has bipartisan support. The version created by the House of Representatives, called the Securing a Strong Retirement Act of 2022 (tinyurl.com/55trhjcu), was approved by a 414-5 vote in March of this year.

The Senate has two versions of its own for retirement reform: the RISE and SHINE Act (officially known as the Retirement Improvement and Savings Enhancement to Supplement Healthy Investments for the Nest Egg Act — tinyurl.com/c8yk6zut), which was produced by the Senate’s Health, Education, Labor and Pensions Committee, and the Enhancing American Retirement Now (EARN) Act (tinyurl.com/ysktetxm), which came from the Senate Finance Committee.

While each of the current three versions has variations, there are common provisions that are expected to appear in the finished product.

What can we expect? Indexing IRA catch-up contributions: In my recent column on new contribution limits for 2023 for individual retirement accounts (IRAs) and 401(k)s (if you didn’t see it, email me at readers@juliejason.com for a copy), you might have noticed that while the additional amount you can contribute to a 401(k) at age 50 and older (known as the catchup contribution) increases $1,000 in 2023 to $7,500 due to a cost-of-living adjustment, the catch-up amount for an IRA, which is unindexed, remains unchanged at $1,000. There is a provision in the new legislation that would index the IRA catch-up contribution.

After-tax employer contributions: Also, there is a provision that would allow an employee with a defined contribution retirement plan (like a 401(k) or 403(b)) to treat matching contributions and other contributions from an employer as after-tax Roth contributions.

RMDs age increases: An increase in the age for having to take RMDs is in the works. The Senate’s EARN Act has the age move from 72 to 75, effective after 2031. The House’s version has a more gradual, 10-year increase to 75: moving to 73 in 2023, 74 in 2030 and 75 in 2033. As I’ve stated before, I’m in favor of raising the RMD age — the older the better. Keep in mind that these ages have to do with mandated withdrawals; optional withdrawals can occur at any age (above 59 without penalty for IRAs).

Others: Among the other proposals are a national database to help people find lost retirement accounts, higher catch-up contribution limits for those in the age range of 60 to 64 (the ages depend on the proposal), permitting employers to make matching contributions to retirement accounts for employees who are not contributing to their retirement plans but are making qualified student loan payments, and auto enrollment requirements for newly created 401(k) and 403(b) plans.

You can read respective summaries of the three legislative proposals at tinyurl.com/5xc5ytme (House) and tinyurl.com/nhzrpfec and tinyurl.com/3fxz5e5r (Senate).

So it appears the retirement realm likely could be changing again. The 100plus associations and companies that called on congressional leaders for action will be pleased (tinyurl.com/ycxuedjt and tinyurl.com/vzn9taah). As will the millions of Americans who benefit from saving though retirement plans. and award-winning columnist and author, Julie Jason, JD, LLM, promotes financial literacy and investor protection. Read her latest book, “The Discerning Investor: Personal Portfolio Management in Retirement for Lawyers (and Their Clients),” published by the American Bar Association. Write to Julie at readers@juliejason.com. While all questions cannot be answered, each email is read and reviewed and can lead to discussion in a future column.