The SECURE Act 2.0 – Another Step in the Retirement Planning Journey

A jar on a table representing an investment concept with plant growing through coins

I try to teach my kids that life is a journey, not a destination. One that we should enjoy the ride along the way. But sometimes, it can be difficult to appreciate this, especially when you’re young and have big dreams and aspirations and can’t wait to accomplish them. I see this first hand with Maeve, who’s seeking a nursing degree at Quinnipiac. As a junior, she’s doing an internship next summer on Martha’s Vineyard and then has another year to go to graduation, and she’s frustrated that she still has another 15 months before she can start her career. Time just can’t go by fast enough.

She and I were talking about this last weekend, and while I can’t change time for her, I did try to impart some words of wisdom. I encouraged her to try not to wish these days away and instead enjoy them. Yes, her courses involve some late nights of study, but every little step she takes brings her closer to her end goal – her nursing career. 

I likened school to a staircase composed of very small steps. After all, it can reach just as high as a staircase made of large steps, but the climb is much more manageable. Every little step counts, and the little steps are usually the ones that actually get taken. 

You know, I see a similar theme in my financial practice on a regular basis. Oftentimes, folks will come in to meet with me at the beginning of the retirement planning process and feel overwhelmed by the number of factors we need to consider as we build their plan. It can seem confusing and overwhelming to tackle every area at once, and this can easily lead to procrastination. I get it.  But this is when I coach them to take a deep breath, relax, and take one thing at a time. Breaking it up into digestible chunks makes the process of preparing for retirement less scary.

Take, for instance, the current bill called “Securing a Strong Retirement Act of 2022”, referred to as SECURE Act 2.0. This is a bill that made it through the U.S. House of Representatives on March 29, 2022, by an overwhelming bipartisan vote, 414-5 and now heads to the Senate for consideration.

This bill could build upon the groundwork for workplace retirement plans established by the 2019 SECURE Act. Now, the contents of the bill won’t cure the retirement crisis looming in America. And yes, there is a crisis, with an estimated 6 in 10 Americans fearing running out of money in retirement more than death₁. But it’s just one more step in the right direction for many Americans, as it makes it easier and more convenient to save for retirement. So this week, let’s take a closer look at the bill and what it means.

For starters, for older employees, the bill would raise the required minimum distribution (RMD) age 72 to 75 — with a phase-in option through 2033 to reach the upper age limit — so they can save for longer. There is also a new catch-up contribution proposed: for those 50 and older, the amount would be increased to $10,000 for an employer-sponsored 401(k) and 403(b), or an additional $5,000 for SIMPLE plans (and these would be indexed for inflation).

For younger employees, the SECURE Act 2.0 aims to address two crises: retirement savings and student loan debt. Instead of contributing to a 401(k) or other type of retirement plan, employees can opt to make contributions that go toward paying off their student loans. These contributions would still be eligible for employer matching.  

Part-time workers benefit too, as they now would be eligible for an employer-sponsored retirement plan. The Act would require employers to allow long-term, part-time workers to defer to their 401(k) plans. 

The bill would require smaller businesses with 401(k) and 403(b) plans automatically enroll employees. Automatic enrollment in a retirement plan is designed to make it easier for employees to participate. To add even more convenience, businesses could integrate automatic enrollment with payroll. Of course, employees who prefer not to participate can opt out. (There is an exception for small businesses with 10 or fewer employees, new businesses less than 3-years-old, churches, and government agencies). 

For start-up businesses with up to 50 employees, the current tax credit is equal to 50% of administrative costs, capped annually at $5,000. Under proposals in SECURE Act 2.0, the 50% would be increased to 100% and businesses of up to 100 employees could qualify.

In addition, the bill would give employees a $1,000 tax credit in the first year of a defined contribution plan, phased down gradually over five years. There would also be an additional tax credit of $500 per year for the first three years.

The bill has widespread support in the House from both Republicans and Democrats, demonstrating their collective determination to solving the looming retirement issues for Americans. As Rep. Kevin Brady, R-Tex. and ranking member of the Ways and Means Committee₂ said, “We designed this bill to really focus on those who have not saved in the past and, unless we do something differently, are not going to be saving for the future,”.

So, what’s the next step? Well, there are a few of them to turn the bill into law. The Senate can send it to committee for a vote, or they can mark it up with requested changes. Before becoming a law, all differences in the bill would need to be reconciled, which includes sending it back to the House of Representatives to consider changes and then another vote in that chamber before heading to Biden for signature. Taking these facets into consideration creates an uncertainty on timing of if or when this bill might become law.

It’s expected that a strong lobbying push will continue to get a final bill through both chambers and enacted into law before the end of the congressional session in December. The provisions of the bill will then be one more tool in our retirement planning arsenal, allowing us to incrementally achieve the ultimate goal – the retirement of our dreams. Now, enjoy the ride!

So as always – be vigilant and stay alert, because you deserve more!

Have a great week.

Jeff Cutter, CPA/PFS offers investment advisory services through Cutter Financial Group, LLC, an SEC Registered Investment Advisor with offices in Falmouth, Duxbury, and Mansfield. Jeff can be reached at Insurance products, including annuities, are offered through Cutterinsure, Inc., (MA insurance license #2080572). Cutter Financial Group and Cutterinsure are affiliated and under common control but offer services separately. Members of Cutter Financial Group’s management receive revenue directly from Cutterinsure. Any compensation received is separate from and does not offset regular advisory fees. Cutter Financial Group does not charge advisory fees on any insurance products. We do not offer tax or legal advice. Always consult with qualified tax/legal professionals regarding your own situation. Investing in securities involves risk, including possible loss of principal. Insurance product guarantees are backed by the financial strength and claims-paying ability of the issuing company. This article is intended to provide general information. It is not intended to offer or deliver investment advice in any way. Market data and other cited or linked-to content in this article is based on generally available information and is believed to be reliable. Please contact us to request a free copy of Cutter Financials’ Form CRS, Form ADV 2A and applicable Form ADV 2Bs. 1. 2.