Not all “Secure 2.0” proposals in the House and Senate are the same
Photo of Mike Kline (notkalvin) | time | Getty Images
Continuous improvement of savings, security
The House passed its version of Secure 2.0, the Securing a Strong Retirement Act (HR2954), in late March with a bipartisan vote of 414-5.
In the Senate, the committees responsible for retirement provisions have now approved proposals that collectively form the basis of this chamber’s Secure 2.0 version: the Committee on Health, Education, Labor and Pensions has proposed the so-called Rise & Shine Act (S. 4353) on June 14, and the Finance Committee on Wednesday gave its backing to a set of more than 70 provisions, although they are not yet in legislative form.
The goal is to continue to improve savings and retirement security, both of which seem elusive for many American households. According to a PwC report, about a quarter of adults have no retirement savings.
Broadly speaking, there is optimism that the House and Senate will be able to reconcile the differences in their proposals and pass an agreed-upon version of Secure 2.0 this year, Richman said. He would likely be attached to a larger tax-related law that is expected to pass later this year.
If Secure 2.0 does not become law, the entire legislative process will have to start over with new proposals at a future Congress.
Here are some key provisions under consideration for Secure 2.0, some of which are the same or similar to both House and Senate Secure — and some that are not.
Leveraging 401(k) funds for emergencies
Two proposals in the Senate – approved by separate committees – deal with access to emergency funds.
One would allow employers to automatically enroll their workers in emergency savings accounts, at 3% of salary, which they could access at least once a month. Workers could save up to $2,500 in the account, and any overcontributions would be automatically paid into a 401(k) account linked to the company.
The other Senate proposal takes a different approach: It would allow workers to withdraw up to $1,000 from their 401(k) or individual retirement account to cover emergency expenses without having to pay the penalty. typical tax of 10% for early withdrawal if under age 59.5. .
Under the House and Senate proposals, victims of recent domestic violence would also not face the 10% penalty for withdrawing up to $10,000 from their retirement savings (or 50% of the account balance). , whichever is lower).
Increase access to the savers’ tax credit
Under current legislation, many low- and middle-income workers are eligible for the so-called saver’s tax credit. It’s worth 50%, 20%, or 10% (depending on income) of contributions made to a corporate plan or IRA, for a maximum credit of $1,000 ($2,000 for married couples).
The credit is not available to taxpayers whose adjusted gross income is $34,000 or more ($68,000 for joint filers). It is also non-refundable, which means that if you owe zero tax, you get no refund of the credit value.
The bill passed by the House would increase the income threshold and increase the number of people eligible for the full credit.
The Senate provision is similar, but would also make the credit fully refundable and require the refund to be deposited into the worker’s retirement account – although amounts under $100 are sent directly to taxpayers.
Mandate automatic 401(k) enrollment for many
The bill that has been approved by the House would require employers to automatically enroll employees in their 401(k) plan at a rate of at least 3%, then increase it each year until the worker contributes 10% of his salary. Workers could opt out.
It excludes existing schemes, companies with 10 employees or less and companies less than 3 years old.
The Senate did not propose automatic registration. Instead, there is a provision that would generally require auto-enrollment plans to check, every three years, whether workers who initially opted out have changed their minds.
Make part-time workers eligible for 401(k) sooner
The original Secure Act ensured that part-time workers who book between 500 and 999 hours for three consecutive years could be eligible for their company’s 401(k). The House and the Senate now want to reduce that period to two years.
(Companies were previously required to grant eligibility to employees who work at least 1,000 hours per year.)
Leaving small 401(k) balances behind
Under current law, if you take a new job and leave behind a 401(k) worth less than $5,000, your ex-employer can kick you out. For amounts less than $1,000, you could be cashed out, while amounts between $1,000 and $5,000 are transferred to an IRA.
Both the House and the Senate are proposing to increase this amount above $7,000.
A related proposal in both houses would create a ‘lost and found’ national retirement savings to help workers reconnect with the retirement accounts they have lost sight of as they move from job to job throughout the throughout their career.
Student loans versus retirement savings
Proposals in the House and Senate would allow employers to make contributions to 401(k) plans (and similar workplace plans) on behalf of employees who repay student loans instead of contributing to their retirement account.
Increase the catch-up contribution
Currently, savers aged 50 or over can make so-called catch-up contributions to their retirement savings. In addition to standard annual contribution limits — $20,500 for 401(k) plans and $6,000 for Individual Retirement Accounts in 2022 — those who qualify can put an additional $6,500 into their 401(k) or 1 $000 in their IRA.
The House bill would expand the 401(k) catch-up to $10,000 for people age 62, 63 or 64. Workers enrolled in so-called SIMPLE plans would be entitled to $5,000 in catch-up contributions, up from $3,000 currently.
The Senate proposal differs by allowing people between the ages of 60 and 63 to make the additional $10,000 catch-up contribution.
Both chambers’ proposals would require all catch-up amounts to be paid as Roth (after-tax) contributions.
Raising the minimum age required for distribution
Under the bill passed by the House, the required minimum distributions, or RMDs, of retirement accounts would start at age 75 by 2033, up from the current age of 72 (which was raised in the original Secure Act). from the age of 70 and a half).
The Senate proposal would raise the age of RMD to 75 by 2032.
Both would reduce the penalty for not taking RMDs to 25% (and in some cases 10%) from the current 50%.
Improving ease of access to annuities
One option for providing an income stream later in life is a qualified longevity annuity contract, or QLAC. Once you have purchased the annuity, you specify when you want the income to start, which cannot exceed age 85.
However, the maximum that can go into a QLAC is $135,000 or 25% of the value of your retirement accounts, whichever is lower.
Both bills would remove the 25% cap. The Senate measure would also increase the maximum amount allowed in a QLAC to $200,000.
Elimination of Roth 401(k) RMDs, allowing matches
Under current law, Roth IRAs — whose contributions are made after tax — have no mandatory withdrawals during the owner’s lifetime — unlike Roth 401(k) accounts. A Senate proposal would eliminate these RMDs before death.
Separately, provisions in both chambers would allow workers to obtain their company’s 401(k) matching contributions on a Roth basis. Under current law, all matching contributions go into a pre-tax account.