The US House of Representatives recently passed a new retirement bill called SECURE 2.0, which is designed to build on the SECURE Act of 2019.
SECURE 2.0 aims to make retirement preparation easier for workers, and there are three big changes that can help push your savings even further. While the new bill is still under review in the Senate and is not yet law, here’s what to expect if it is passed.
1. Increased RMD Age
If you’re saving in a 401(k) or traditional IRA, you need to start making required minimum distribution (RMD) once you turn 72 – whether or not you are ready to retire at that age.
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That’s because you have to pay income tax on your withdrawals, and Uncle Sam eventually wants that money. RMDs ensure that you are not leaving your savings in your retirement fund indefinitely. The original SECURE Act raised the age that you must start taking RMDs from 70 1/2 to 72, and SECURE 2.0 proposed raising it again to age 75 by 2032.
If you plan to continue working well into your 70s, it can help your money last longer. Right now, you have to start withdrawals at age 72, even if you don’t need that money. Under the new bill, however, you can leave your savings in your retirement account longer, giving that money more time to grow.
2. Student Loan Benefits
SECURE 2.0 aims to help people with student loans save more for retirement. As more older Americans take out student loan debt, this bill could potentially help workers of all ages save more.
There is a proposal within the bill 401(k) Contribution Matching from employers. For every dollar an employee pays toward eligible student loans, the employer can match those contributions. So, for example, if you paid $200 towards your loans, your employer can contribute up to $200 to your 401(k).
The proposal is intended to help workers avoid choosing one of these pay off debt and saving for retirement. Many 401(k) plans already offer employer matching contributions, and this bill will ensure that workers paying student loan debt won’t have to miss out on those benefits.
3. High Catch-up Contribution
Under current law, people age 50 and older are eligible to contribute more to their retirement accounts than younger workers. Right now, these catch-up contributions are limited to $6,500 per year for 401(k)s and $1,000 per year for IRAs.
SECURE 2.0 proposes a higher limit of $10,000 per year for those aged 62 to 65. If you are lagging behind in your savings and are able to take advantage of these catch-up contributions, this higher limit can go a long way. Towards building a strong nest egg.
Again, SECURE 2.0 has only just passed in the House of Representatives, and it is likely that the Senate will come up with its own draft of the bill before anything is passed. But by staying updated on the latest retirement laws, you can ensure that you’re maximizing your savings and going into your senior years for as long as possible.
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