What Does the SECURE Act 2.0 Mean for Me?

The House of Representatives has passed a bill that will improve the retirement savings system for U.S. workers, moving it closer to becoming law. But how will this affect those retiring in Iowa? 

The SECURE Act 2.0 builds on setting every community up for the Retirement Enhancement (SECURE) Act, signed into law in December 2019 to improve retirement savings opportunities for workers.

It has some provisions that are pretty favorable in terms of allowing individuals to save more for retirement, and it has some provisions that are helpful for younger savers, too. You might be wondering what else the SECURE Act 2.0 means for you and how it might affect your retirement plans as a resident of Iowa. Here are the limitations and key retirement plan changes made by SECURE Act 2.0.

Retirement Plan Contribution Limits Explained

Currently, catch-up contributions for those who have reached age 50 can contribute more to their plans, allowing them to have a more secure retirement.  Here are the current catch-up contribution totals:

  • 401(k) Plan: $6,500 in 2021 and 2022
  • Traditional IRA: $1,000 in 2021 and 2022
  • Roth IRA: $1,000 in 2021 and 2022
  • SIMPLE IRA: $3,000 in 2021 and 2022

With SECURE Act 2.0, catch up contributions have increased for older Americans aged 62, 63, and 64. These proposed catch-up contributions are only three years for the age group mentioned above. For 65-year-olds and older, it’s the regular catch-up contribution limits. 

  • 401(k) Plan: $10,000
  • Traditional IRA: No set increase, but indexes current $1,000 catch-up limit to inflation.
  • Roth IRA: No set increase, but indexes current $1,000 catch-up limit to inflation.
  • SIMPLE IRA: $5,000, indexed to inflation.

What Does This Mean?

Raising the catch-up limit for older workers will benefit highly compensated employees who can afford to contribute beyond the present maximum. Starting in 2023, SECURE Act 2.0 provides that all catch-up contributions to employer-sponsored plans must be made to Roth accounts, allowing the government to tax these dollars sooner. 

Roth account contributions are made with post-tax dollars that can be withdrawn tax-free after retirement in Iowa. Catch-up contributions currently can be made on either a pre tax or Roth basis. This is only if it is permitted by the plan sponsor. 

Currently, the catch-up amount for individual retirement account (IRA) contributions is $1,000 (not indexed) for individuals who have reached age 50. SECURE Act 2.0 indexes this limit to inflation starting in 2023. The measure also raises the catch-up limit for SIMPLE plans to $5,000 from $3,000, indexed for inflation.

Employer matching contributions must be paid into employees’ pre tax 401(k) accounts. Starting in 2023, under SECURE Act 2.0, plan sponsors would have the option of permitting employees to elect that some or all of their matching contributions be treated as Roth contributions for 401(k) plans. Employer matching contributions designated as Roth contributions would not be excluded from employees’ gross taxable income.

Delay Mandatory Distributions

The original SECURE Act increased the age at which participants in employer-sponsored defined contribution plans and traditional (non-Roth) individual retirement accounts must begin taking required minimum distributions (RMDs) to 72, up from 70-1/2.

SECURE Act 2.0 further increases the age for starting RMDs to:

  • 73 starting in 2023 (for individuals who reach age 72 after Dec. 31, 2022, and age 73 before Jan. 1, 2030).
  • 74 starting in 2030 (for individuals who reach age 73 after Dec. 31, 2029, and age 74 before Jan. 1, 2033).
  • 75 starting in 2033 (for individuals who reach age 74 after Dec. 31, 2032).

When required distributions kick in, they would be withdrawing more money annually over a smaller time period. However, taking RMDs later allows the opportunity for more Roth conversions after retirement and before RMDs kick in,spreading conversions over more years, and spreading out the additional taxes.

What’s Next?

Now that it’s passed the House, the legislation will be sent to the Senate for possible action in the coming months.

There are other bills in Congress that overlap with the SECURE Act, and if passed first would make similar improvements to retirement saving. The House Education and Labor Committee in February amended the RISE Act, H.R. 5891, which also addresses retirement savings plans.

There are two similar bills in the Senate that address retirement savings. One is the Retirement Security and Savings Act, S. 1770, and the other is the Improving Access to Retirement Savings Act, S. 1703. We’ll be sure to update you as advancements are made.

How Johnson Wealth & Income Management Can Help

As Iowans, we prefer to take the guess work out of retirement planning. From the SECURE Act 2.0 to IRS changes and Social Security provision amendments, one of the most important decisions you’ll face as a pre-retiree is choosing an advisor to help you sift through all the noise.

At Johnson Wealth and Income Management, our commitment is to help you work towards achieving all your financial goals and to help provide you with a “worry free” retirement. We offer the following services to help get you there:

  • Retirement Planning
  • Financial Advising /Planning
  • Investment Planning
  • Tax Options
  • Estate Planning
  • Insurance Options
  • Money Management
  • Lifestyle Balance

It’s important to choose someone you can trust, who makes you feel comfortable and whose skills are a good match for your individual needs. Matthew P. Johnson is an experienced Fiduciary who can help you navigate all things retirement planning in Iowa.

What is a Fiduciary you ask? A Fiduciary is a person or legal entity, such as a financial firm, that has the power and responsibility of acting for another (usually called the beneficiary or principal) in situations requiring total trust, good faith and honesty. Whether you need to come up with a saving plan for retirement, help manage your debt, diversify your portfolio or make your paycheck last longer, we can help you set clear financial goals and much more.

Final Thoughts

The biggest take away of the SECURE Act 2.0 is that it has passed the U.S. House of Representatives. While it has only passed through the House, it will need to go to the Senate and then President Biden to sign off on it for it to take effect. 

As Iowans, we long have pride ourselves in being middle Americans — working hard and enjoying a lifestyle of moderate measures. To make this life a reality, keeping up to date with policy changes affecting retirement is a must.

If you are looking for an Iowa-based, full-service financial firm you can count on, contact the team at Johnson Wealth and Income Management here today. Our friendly and courteous team are waiting for your call.

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