SECURE 2.0 closes in on the finish line

Update: SECURE 2.0 passed Congress on December 23, 2022, and it was subsequently signed into law by the president on December 29, 2022.

SECURE 2.0, the bipartisan bill to enhance retirement savings, is close to passing its final hurdle this week. The bill, which garnered significant bipartisan support in the House and Senate, was attached to the 2023 omnibus appropriations bill this week. It is likely that the measure could pass by the end of the week.

In late 2019, Congress passed the SECURE Act (Setting Every Community Up for Retirement Enhancement), introducing the most significant changes to the retirement industry since the Pension Protection Act (PPA) of 2006. As a follow-up to this landmark law, a proposal was introduced by the House Ways and Means Committee to build on the principles of the SECURE Act by expanding access to retirement accounts, promoting participation, and preserving savings.

SECURE 2.0?provides for many changes to retirement savings, including:

• Expanding participation in retirement plans by enhancing tax credits for small business owners to establish new plans. The bill also requires auto-enrollment on some new plans beginning in 2025
• Preserving savings with a provision to increase the RMD age to 73 in 2023, and 75 in 2033. In addition, the penalty for not taking an RMD decreases from 50% of the RMD amount to 25%, and as low as 10% in certain circumstances
• A provision allowing for up to $2,500 in emergency savings withdrawals from 401(k) plans where participants can access funds free of taxes and early withdrawal penalty
• Individuals affected by federally declared disasters can take up to $22,000 penalty free and have the option to pay the income tax over three years and repay the money
• Expanding Roth accounts, including Roth SIMPLE IRAs and Roth SEP IRAs. Catch-up contributions within retirement plans will have to be contributed in a designated Roth account (with some exceptions)
• To address a disparity that’s been in place, the bill removes required distributions from designated Roth accounts within employer plans; this makes them consistent with Roth IRAs
• In a somewhat surprising move, lawmakers included a provision that allows unused 529 savings plan funds (up to $35,000) to be rolled into a Roth IRA if the 529 account is at least 15 years old
• Nothing in the legislation would prevent use of the “back door” Roth contribution, which has been a popular savings action for those who cannot contribute directly to Roth IRAs due to their income being too high

Retirement planning impact

Multiple provisions are included in SECURE 2.0 that impact retirement savings for individuals, retirement plans, and plan sponsors. Many changes will take effect in January 2023.

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The opinions expressed here are my own and not those of Putnam Investments and are not intended as tax, legal, or investment advice.?Investors should carefully consider the investment objectives, risks, charges, and expenses of a fund before investing. For a prospectus, or a summary prospectus if available, containing this and other information for any Putnam fund or product, visit the?prospectus section, call your financial representative, or call Putnam at 1-800-225-1581. Please read the prospectus carefully before investing. Putnam Retail Management

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