SECURE Act 2.0: Building a better bridge to retirement

| January 06, 2023

One frequent complaint about Washington is that spending bills are laden with legislation and funding for projects that are unconnected with the bills’ intent, often included to obtain support from particular politicians or special interest groups. Remember Alaska’s Bridge to Nowhere?

Sometimes, however, many of us can get behind these efforts. In its fiscal-year 2023 government funding bill, Congress included legislation for SECURE Act 2.0 to improve our ability to save for retirement. The original SECURE Act passed in 2019 included important provisions, but many felt it didn’t go far enough. So talk of SECURE Act 2.0 followed shortly after, culminating in the December legislation.

Some of the highlights of this legislation are:
The beginning age for required minimum distributions (RMDs) will increase to 73 this year, from 72 currently, and eventually rise to 75 in 2023. This allows you to keep your funds at work longer in retirement accounts.
RMDs for qualified employer Roth plan accounts will be phased out in 2024.
Catch-up contribution limits to retirement plans will increase in 2025.
An expansion of automatic enrollment requirements for employers offering 401(k) and 403(b) plans beginning in 2025.

That’s just the beginning of SECURE Act 2.0. Other provisions cover emergency withdrawals, employers’ ability to match contributions in your retirement account based on your student loan payments, and the opportunity to roll funds from a 529 college-savings plan into a Roth IRA.

As a country we haven’t done well to prepare people for their retirement years. In a 2022 ranking of 44 global retirement income systems by consultant Mercer and the CFA Institute, the U.S. graded out at C+, good for No. 20 on the list. This isn’t everything we need to fix what many believe is a broken retirement system, but the legislation at least moves us in the right direction.

U.S. employers’ gradual transition from providing pensions to offering retirement savings plans has done more than shift the monetary burden for planning on employees. The information burden today is also on employees. When legislation such as SECURE Act 2.0 is passed that can have an important impact on future retirees, how do they find out? Sure, the news is reported, but in an age of information overload, it’s difficult to separate the wheat from the chaff. And with the news cycle constantly refreshing, it’s easy to miss important news.

That makes the relationship with your financial planning and tax professionals even more important. A lot of firms send emails or publish newsletters and blog items after major legislation is passed that provide an expert’s view of how changes affect clients. Given the checks in place regarding communicating with clients and the public (including a review by a compliance officer), the information likely is more reliable and relevant than what you’d see in the media.

So I recommend bookmarking your tax and financial firms’ websites and checking in periodically (a couple of times a year, maybe) to see what’s new. Make sure their emails aren’t going into your junk folder. And if you have questions, contact your advisors.

By making sure you’re properly informed, you can make better decisions today that will help make sure your journey to retirement doesn’t lead to your own Bridge to Nowhere.