SECURE ACT 2.0: Congress Poised to Raise RMD Age Again

Overview of H.R. 2954 – Retirement Plan Provisions and RMDs

At the end of 2019, Congress passed the SECURE Act. One of the main provisions of the Act increased the age for taxpayers to begin taking Required Minimum Distributions (RMD) to age 72 for taxpayers that had not reached age 70-and-a-half by the end of 2019. Recently, the IRS issued proposed regulations interpreting this provision and other provisions of the Act.

On March 29, 2022, the House of Representatives passed The Securing a Strong Retirement Act of 2021 (H.R. 2954), often referred to as SECURE Act 2.0. The Bill would expand some retirement plan provisions and would again increase the age for taxpayers to begin taking RMDs.

The Bill now goes to the Senate and very well could become law in 2022.

Below are some of the key provisions of the House bill (the Bill):

Expanding automatic enrollment in retirement plans

The Bill requires 401(k) and 403(b) plans to automatically enroll participants upon their becoming eligible. The initial automatic enrollment amount is at least 3% but no more than 10%. And each subsequent year the amount is increased by one percentage point until reaching 10%. There is an exception for small businesses with 10 or fewer employees, new businesses (those that have been operating for less than three years), church plans, and governmental plans. Employees can affirmatively elect to opt out of this rule and select a different contribution out, due to the impact on the employees take home pay.

Indexing IRA catch-up limit

Under current law, the limit on IRA contributions is increased by $1,000 (not indexed) for individuals who have reached age 50. The Bill indexes such limits starting in 2023.

Higher catch-up limit to apply at age 62, 63, and 64

Under current law, employees who have reached age 50 are permitted to make catch-up contributions under a retirement plan in excess of the otherwise applicable limits. The limit on catch-up contributions for 2021 is $6,500, except in the case of SIMPLE plans, for which the limit is $3,000. The Bill would increase these limits to $10,000 and $5,000 (both indexed) for individuals who have reached ages 62, 63, and 64 but not 65.

The Bill would require that all future catch-up contributions would be treated as ROTH contributions and could not be treated as pre-tax contributions.

Increase in age for required beginning date for mandatory distributions

Under current law, participants are generally required to begin taking distributions from their retirement plans at age 72. The bill increases the required minimum distribution age further to 73 starting on January 1, 2022—and increases the age further to 74 starting on January 1, 2029, and 75 starting on January 1, 2032.

SIMPLE and SEP Roth IRAs

Generally, all plans that allow pretax employee contributions also are permitted to accept Roth contributions with one exception—SIMPLE IRAs, 401(k), 403(b), and governmental 457(b) plans are allowed to accept Roth employee contributions. The Bill would allow SIMPLE IRAs to accept Roth contributions as well.

Other provisions of the Bill are as follows:

• Plan sponsors would have the option of allowing their employees to elect for some or all of the employer’s matching contributions to be treated as Roth contributions;
• The bill would allow plan sponsors to treat payments of student loan debt as elective employee deferrals for purposes of making employer match contributions;
• The bill would allow for ROTH IRA amounts to be rolled over into an employer’s defined contribution plans;
• For long-term, part-time workers, the bill would shorten from three years to two years the measurement period for eligibility that starts after 2021;
• The bill would permit plan participants who self-certify that they have been subject to domestic abuse to withdraw some funds from IRAs and employer plans free from the 10% early withdrawal penalty.

Keiter will continue to monitor the progress of this legislation.

If you have questions on this or other wealth tax/planning matters, please contact your Opportunity Advisor or Email | Call: 804.747.0000. We can advise you on strategic estate tax savings and planning opportunities that best fit your unique needs.

Source

Thomson Reuters