Our clients are just getting used to the idea that they don’t need to start Required Minimum Withdrawals (RMDs) from their IRA and retirement accounts until age 72.
And guess what? Congress is at it again.
The powerful Ways and Means Committee in the House of Representatives is working on Secure 2.0 (full name – Securing a Strong Retirement Act of 2021), yet another update to retirement rules that were just modified at the end of 2019. You may recall that the original Secure Act raised the RMD age from 70½ to 72.
Here’s a sneak peek at what you need to know about the proposed rule changes:
So far, it’s just a proposal, not a change to existing law. The initiative has been passed by the House Ways and Means Committee. It will now be presented to the entire House, where it will be debated before advancing to the Senate. It’s a long road to becoming law, but Congressional experts say the likelihood of eventual approval is good. Still, there’s no action clients need take at present, and we do not expect this to impact your Required Minimum Distributions for 2021.
Among other measures, the proposal would push back RMDs from age 72 to age 75, with gradual increases over 10 years. Secure 2.0 would increase the RMD age to 73 starting on January 1, 2022; to 74 starting on January 1, 2029; and to 75 starting on January 1, 2032. “That means you could have more time for your money to grow tax-free but if you delay RMDs, your withdrawals may need to be larger,” reasons financial writer Jackie Stewart of Kiplinger Personal Finance.
The proposals also include larger “catch up” amounts for workers nearing retirement. For example, workers between ages 62 and 64 could contribute an extra $10,000 to their 401(k) instead of $6,500. Another enhancement would allow employers to make matching 401(k) contributions to employees based on their student loan payments. That would help workers save for retirement even if they are burdened by student loans.
Other measures apply to 403(b) improvements, military spouses and small business credits. Overall, the focus is on making retirement accounts more accessible to more people.
The Takeaway: The proposals are well-meaning and arguably a step in the right direction. However, this will further complicate a process that is little understood by most retirement plan participants. As a practitioner, I would prefer simpler rules that clients can more easily understand and follow, and a “level playing field” that allows all workers to participate in a universal plan type, like a 401(k), with higher contribution limits. After all, the bigger problem is helping American workers get money into a retirement plan, not take money out of it. As always, we’ll keep you posted on these new retirement proposals, and advise you of any steps you’ll need to take as the rules evolve.