On the Horizon: Possible Retirement Plan Changes with SECURE Act 2.0
In late 2019, then President Trump signed the Setting Every Community Up for Retirement Enhancement Act Of 2019 (the SECURE Act), rolling out a number of significant changes to retirement plans. These changes included modifications to the required minimum distribution (RMD) rules for IRA beneficiaries, additional exceptions to early withdrawal penalties from qualified retirement plans, and a number of tax changes including a reinstatement of the kiddie tax, which was previously suspended under the Tax Cuts and Jobs Act (TCJA).
Currently, there is also bipartisan support in Congress to move forward with a second iteration of the SECURE Act – the SECURE Act 2.0 – that would legislate further changes benefitting retirement plan participants. Following is a brief overview of some potential changes on the horizon:
- Further RMD Changes: The first SECURE Act increased the minimum required age from 70 ½ to 72; the SECURE Act 2.0, if enacted, would further increase the age to 75 as well as lower the penalty for anyone not taking an RMD from the current 50 percent of a required balance down to 25 percent.
- Auto-enrollment in Retirement Plans: Potential changes include a requirement to auto-enroll all eligible participants in new retirement plans, at a minimum deferral of 3 percent and with an automatic annual increase of 1 percent (up to a 10% maximum). Current plans would be exempt from this change, as well as certain small businesses, government entities and churches, and participants in eligible plans would be permitted to opt-out.
- Changes to Catch-up Contributions: New changes would increase the current catch-up limit from $6,500 to $10,000 for individuals 60 and older.
- Matching Employer Contributions: For participants making student loan payments and unable to contribute more to their retirement plans, employers would be permitted to make matching contributions to qualified loan payments.
- QCD Changes: Currently, individuals over the age of 70 ½ who hold an IRA are eligible to make tax-free contributions directly from their IRA to qualified charities. If enacted, the SECURE Act 2.0 would increase the maximum amount of qualified charitable distributions (QCDs) from $100K to $130K as well as extend this opportunity outside of IRAs to certain other qualified retirement plans.
The SECURE Act 2.0 remains in draft at this juncture and thus, these changes are merely proposed. As Congress moves closer to finalizing legislation, we will keep you apprised of potential implications to you and/or your organization.
In the meantime, please don’t hesitate to reach out to a member of MFA’s Retirement Plan Advisory Team with any questions or concerns.
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