Advances on Retirement Accounts Bill

Retirees who can afford to sit on their nest eggs a little longer to allow for more tax-deferred growth could win big thanks to a bill sailing through Congress.

Last week, the House of Representatives overwhelmingly approved a bill that will raise the age at which people are required to start withdrawing money from their retirement accounts from 72 to 75 in three stages at over the next 11 years.

The comprehensive retirement bill called Securing a Strong Retirement Act of 2022 – or Secure Act 2.0 – passed the US House by a vote of 414 to 5, and will now go to the US Senate, where it benefits bipartisan support.

If it becomes law, Secure 2.0 will be the second time in three years that Congress has raised the required minimum age of distribution, or RMD. It would set a timetable for increasing the age in stages until 2033.

“While a little complicated to follow IMHO, I like that people will be able to further delay the requirement to withdraw money from IRAs if they don’t need it – thereby delaying payment income tax on that money,” said financial advisor J. Victor Conrad, owner of Pinnacle Financial Strategies in Pine Township.

The legislation builds on the first Secure Act, which was passed in 2019, and paints a broad spectrum of pension issues – opening the doors to pensions for more people, enabling retirement savers to save more.

The law would require employers to automatically enroll workers in pension plans, leading to more savings.

It increases catch-up contribution limits for older workers and makes special provisions for workers burdened with student debt by allowing employers to match workers’ debt payments with contributions to the workers’ retirement account. .

“The law appears to significantly strengthen and expand the opportunities for individuals to build retirement assets,” Chris Chaney, vice president and financial advisor at Fort Pitt Capital Group, told Green Tree.

“It’s a recognition that Social Security is likely to face challenges,” Chaney said. “So the more assets people can build themselves, the better.”

People with enough retirement income to live on can let their IRAs sit in tax-deferred investments and let balances grow before they have to pay taxes on the money if Secure 2.0 becomes law.

The federal government requires owners of retirement accounts to start withdrawing a minimum percentage of the account balance when they reach a certain age so that the person can start paying taxes on the withdrawals.

For years, the age of the RMD was 70 and a half. The Setting Every Community Up for Retirement Enhancement Act, also known as the Secure Act of 2019, raised the age to 72.

Secure 2.0 also encourages more retirement dollars to flow into Roth retirement accounts. Contributions to the Roth Account do not receive any pre-tax benefit. The money that goes into these accounts is taxed upfront. But account holders can withdraw money from Roth accounts tax-free in retirement.

Currently, employer matching contributions to pension plans must be paid into pre-tax accounts.

Under Secure 2.0, from 2023, corporate pension plan sponsors could allow employees to choose to have some or all of their matching contributions treated as Roth contributions.

“These after-tax contributions, as I understand it, would not be excluded from employees’ gross taxable income,” Conrad said. “So that’s something to be aware of, because currently the company’s matching contributions in the pre-tax account are not included in employees’ taxable income.

“I frankly like that this option is made available to savers,” he said, “just be aware of the tax treatment of the Roth Company matching contribution.”

Catch-up contributions would also increase.

Secure 2.0 maintains existing 401k and 403b plan catch-up contribution limits for ages 50-61. But the annual catch-up amount for pension plan participants aged 62 to 64 increases to $10,000 starting in 2024.

Another change in retirement savings rules – which encourages Roth contributions – is that from 2023, all catch-up contributions to employer-sponsored plans must be paid into Roth accounts.

It also extends automatic registration. While employers have had the ability to add new eligible employees to their pension plans since the late 1990s, Secure 2.0 requires employers who offer qualified pension plans to enroll all new eligible employees in the plan at a level contribution of 3% which increases by 1%. annually at 10%.

Shana Bielich, vice president of Coghill Investment Strategies, Downtown, said Secure 2.0 will make retirement savings more accessible.

“Several studies suggest that most Americans are not saving enough for a secure financial future,” she said. “For some, it may be because retirement is too far in the future. … But for most, they just don’t have enough resources to allocate to a retirement plan.”

Lack of money in retirement worries 63% of non-retirees more than fear of death, according to new research from Minneapolis-based Allianz Life.

Kelly LaVigne, vice president of consumer insights at Allianz Life, said the study found pre-retirees are concerned about the current market and unsure how they will be able to save enough for retirement.

He thinks Secure 2.0 provisions such as automatic enrollment in 401Ks at 3% and allowing employer matching contributions for workers struggling with student loan debt will address some of the gap. retirement savings.

“What this does for the young saver is they’re putting money aside for retirement before they even see it or miss it,” LaVigne said. “And that encourages saving for future retirement. The earlier you start, the better off you are.

“This bill really builds on the original Secure Act, adding a few additional provisions that may help both young people saving for retirement.

“And also [it helps] seniors who are either underserved for their retirement or who fear withdrawing money from their IRA early and then have to worry about living too long.”

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