A package of proposed changes to help Americans save more for retirement could soon be the law.
The changes, part of the Secure Act 2.0, are included in the sweeping end-of-year spending bill that lawmakers will likely vote on in the coming days to avoid a government shutdown, according to the text of the $1.7 trillion 2023 Government Funding Legislation published Tuesday.
If passed, they could benefit Americans across the spectrum regardless of how close they are to retirement, though many provisions wouldn’t take immediate effect.
Included in the broad retirement legislation are measures to allow employers to count employees’ student loan payments toward their retirement match and increases in the age you’re required to begin withdrawing from tax-deferred retirement accounts.
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What is Secure Act 2.0?
Earlier this year, the U.S. House of Representatives passed the Securing a Strong Retirement Act of 2022, and the Senate approved The Enhancing American Retirement Now Act (EARN) and the Retirement Improvement and Savings Enhancement to Supplement Healthy Investments for the Nest Egg Act, (RISE & SHINE). These three bills are the basis for the Secure Act 2.0, which builds on the 2019 Secure Act.
The 2019 Secure Act included giving part-time workers better access to retirement benefits and increasing the age when required minimum distributions from certain retirement accounts must start at age 72 from 70½. If the Secure 2.0 Act passes, it would raise that age to 73 starting January 1, 2023, and 75 by 2033.
401(k) changes for people paying off student loans
Secure Act 2.0 is meant to help Americans save for retirement, but one particular proposal that would allow companies to contribute to 401(k) plans for an employee making student debt payments could help solve a problem affecting millions of people.
Eighty-four percent of adults said student loans limited the amount they’re able to save for retirement, according to a 2019 study by the Massachusetts Institute of Technology Age Lab and financial services organization TIAA. Among those who weren’t saving for retirement at all, 26% said it was because they had to put their money toward paying off student loans.
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“Employees, including those who are not in a position to contribute at all to their 401(k) accounts because of student loans, who participate in the new program could accumulate tens of thousands of dollars in their 401(k) accounts over a decade, which could be worth hundreds of thousands of dollars at retirement,” insurance company The Travelers Cos. said in a release announcing its Paying It Forward Savings Program in 2020.
The program considers student loan payments when determining the company’s 401(k) contribution. “That demonstrates the importance of starting to save for retirement early in order to realize the benefit of compounding returns over time,” Travelers said.
Though some companies have launched programs like Travelers’ to help their employees, the guidance included in the Secure 2.0 Act would make it easier for all businesses to do so.
The measure wouldn’t take effect until 2024.
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What else is included in Secure Act 2.0?
- Automatic enrollment into new company retirement plans
- Increasing catch-up contribution limits for people 60 to 63
- Financial incentives for contributing to a plan
- Expanded access to retirement plans for long-term, part-time workers
- Expanded access to the Saver’s Credit (a tax credit for contributions) for lower- and middle-income workers
- Easier access to retirement accounts for emergency situations
If passed, it’ll be sent to the president, who is expected to sign it into law to avert a government shutdown. If the Secure 2.0 Act is taken out of the omnibus bill at the last minute, the entire legislative process would need to start over with the next Congress in January.
“It’s a tight window for passage, but it’s still likely because it’s such a bipartisan piece of legislation,” said Dave Stinnett, a principal who heads Vanguard Strategic Retirement Consulting.
Medora Lee and Elisabeth Buchwald are money, markets, and personal finance reporters at USA TODAY. Subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.
Story Credit: usatoday.com