We have been providing updates about the Securing a Strong Retirement Act that would alter the individual retirement account parameters. It was introduced last year, and the prospects for enactment have always been good, because legislators from both parties are in favor of it.
This measure is often referred to as “SECURE Act 2.0” because it expands on the SECURE Act that was enacted in December of 2019. It has now been passed in the House of Representatives by a 414-5 vote, so it is one giant step closer to enactment.
Provisions in SECURE Act 2.0
A lot of workers have student loan debt, and the payments can be considerable. Many of them feel as though they cannot afford to contribute into 401(k) plans, so they are not on a path that will lead to a comfortable retirement.
The government has recognized this reality, and SECURE Act 2.0 would provide them with a lift. Under one of the provisions, employers would be able to provide matching 401(k) contributions of qualified student loan payments that are made by their employees.
Traditional individual retirement accounts are funded before taxes have been paid on the income, so the accounts grow in a tax-deferred matter. Account holders are required to take distributions when they reach a certain age to compel them to start paying taxes.
The age was traditionally 70.5, but it was increased to 72 when the SECURE Act changes were implemented in 2020. This new measure would increase the age to 75 over a number of years, and the first increase would be a move up to 73 in 2022.
Employers would be required by law to enroll their employees into workplace retirement savings plans at a rate of 4 percent. It would go up by 1 percent per year until it reaches 10 percent, and employees would be permitted to change the percentages or opt out altogether.
There is currently a savers credit of $1000 per year for 401(k) contributors that are in low to middle income brackets. This would go up to $1500, and more people would become eligible because the requirements would be changed.
Stretch IRA Eliminated
There was a provision in the initial SECURE Act that was of great interest to estate planning attorneys. Prior to this measure’s enactment, non-spouse beneficiaries were compelled to take required minimum distributions, but they could stretch them out indefinitely.
If the beneficiary took only the minimum that was required by law, they could take optimal advantage of the tax benefits. Since distributions to Roth account holders are not taxable, it was especially advantageous for relatively young beneficiaries of these accounts.
Age was relevant because life expectancy would be a contributing factor when the required distribution was being determined. Now, the open-ended stretch approach cannot be implemented, because an inherited account must be closed within 10 years of the original account holder’s death.
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If you are ready to work with a Glastonbury, CT estate planning attorney to develop your plan or revise your existing plan, we would be glad to help. You can send us a message to request a consultation appointment, and we can be reached by phone at 860-548-1000.
Mr. Horowitz was awarded his Juris Doctor degree with honors from the University of Connecticut School of Law. While attending law school, Mr. Horowitz received the American Jurisprudence Award in Legal Ethics and the Nathan Burkan Award.
After graduation from law school, Mr. Horowitz continued his legal education at New York University School of Law where he received a Post Doctorate Law Degree in Taxation. He has also recently received a national achievement award.
Mr. Horowitz is admitted to practice before all the state courts in the State of Connecticut and the United States District Court.
Mr. Horowitz was selected for Super Lawyers in 2021, 2022 and 2023.
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