Secure 2.0 is in the omnibus spending bill

CNBC is reporting Secure 2.0, building on the Secure Act of 2019, is included in the omnibus federal spending bill over the coming year. A lot is included to improve retirement. Let’s take a look.

• Requiring automatic 401(k) enrollment – Studies show automatic enrollment improves retirement savings compared to opt-in. Savers can decrease it after, but rarely do.
• Increasing the age when RMDs would need to start – Required Minimum Distributions force you to dislodge some of the money in retirement accounts. Many times they are based on your remaining life expectancy. Secure 2.0 raised the age from 72 to 73 in 2023, and 75 by 2033. If you have other sources of income, this allows your retirement savings to grow before taking money out.
• Creating bigger “catch-up” contributions for older retirement savers – The cap will be lifted for older savers, from $6500 to $10000, indexed for inflation, and not pretax (Roth treatment) except for workers making less than $145,000 a year. Anything that allows you to save more money for retirement is good.
• Broadening employer 401(k) match options – For those of suffering from student loans, new options will allow employers to make contributions for student loans instead of only as a retirement match.
• Improving worker access to emergency savings – Workers will be able to take out up to $1000 from their retirement as emergency savings, penalty free. Given 56% of Americans can’t cover $1000 for an emergency, this is helpful.
• Increasing part-time workers’ access to retirement accounts – Part-time workers working between 500 and 999 hours a year can contribute to their company 401k after two years, rather than three years today.
• Boosting how much can be put in a qualified longevity annuity contract – The maximum than can go in a QLAC is now $200,000. What the heck is a QLAC? If life insurance covers you if you die too early, QLAC’s cover you living too long with not enough money. We’ve covered the value of guaranteed income in retirement in other pieces. From Investopedia:

A qualified longevity annuity contract provides a lifetime of income once the preset annuity start date is reached. The longer an individual lives, the longer a QLAC pays out. One of the benefits of using IRA funds to purchase a QLAC is that it helps to avoid violating the IRS RMD rules for those turning age 72.

A QLAC allows for a transfer of IRA funds to be used to purchase the annuity. Since a QLAC is a deferred annuity, the product allows distributions to be delayed until a future date but no later than the person’s 85th birthday.

Another benefit of a QLAC is that it allows a spouse or someone else to be a joint annuitant, meaning that both named individuals are covered regardless of how long they live (with some conditions).

Investopedia, Qualified Longevity Annuity Contract (QLAC): Definition and Taxes

• Broadening uses for unused college savings money – Under certain conditions, 529 college plans can be converted to Roth IRA’s. Our recommendation for Roth IRA’s is starting a Roth IRA as soon as your children start working. Let the power of tax-free growth work for them.

The bill also includes incentives for small businesses to set up retirement savings plans for their workers, encourages individuals to set aside long-term savings and makes it easier for annuities to be an income option for retirees.

CNBC

On the whole, it seems these are all positive changes. It won’t help you much if you don’t have access to a 401k at work, if you work in a small business unable to provide a 401k, or if your student loans stifle your ability to save and invest. Sensible changes would uncouple healthcare and retirement savings from your employer and make them portable. If I’m making Christmas gift wishes to Santa, that would be my wish.

The median amount in retirement savings across all age groups is pathetic. You can’t save for the future if you don’t have enough income today. We’ve been there. It speaks to unbalanced income inequality that a handful of billionaires in this country have a higher net worth than 50% of the population with the least assets. For those 65 and above the average retirement savings balance is $280k and the median is $87k. That’s a tough retirement, if those folks ever retire. It’s why we encourage our readers to gain more income, to start saving early, which makes it easier to save for emergencies and retirement.

Happy belated Hannukah, Happy Kwanzaa, and Merry Christmas!

Sincerely yours,

smilingdad

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