Financial Planning

SECURE Act 2.0: What you should know

BY CHRIS BENSON, CPA, PFS

Would it surprise you to learn the U.S. House of Representatives passed a bill earlier this year by an overwhelming vote of 414-5? The same politicians who can’t seem to agree on anything apparently do agree that we need to improve retirement plans and allow people to save more for retirement.

The Senate is currently working on its own version of a retirement bill that includes many of the same provisions as “The Securing a Strong Retirement Act” that was passed by the House. Many have dubbed the new legislation “Secure Act 2.0” and expect the legislation to be passed before the end of the year. You might remember the original SECURE Act, which was passed back in December 2019, as the bill that pushed back the required minimum distribution age to 72 and eliminated the stretch IRA, among other items. (Read more at LKBenson.com/blog/ securefinal.) This new legislation will expand on some of the changes under the original SECURE Act and add some new items.

Here are some of the major provisions included in the proposed legislation.

REQUIRED MINIMUM DISTRIBUTION (RMD) START DATE PUSHED BACK AGAIN

Just as we were starting to get used to the change from age 70.5 to 72 for the start of RMDs under the original SECURE Act, it looks like more changes are coming. Under both plans, the RMD start date would be pushed to 75, but it will likely happen gradually. For example, under the House plan, RMDs would start at: • 73 if you turn 72 from 2023-30; • 74 if you turn 73 in 2030-33; and • 75 if you turn 74 in 2033 or later. While this will likely cause confusion for many, it also could open the door to additional tax planning opportunities for taxpayers who retire prior to their RMD age.

CATCH-UP CONTRIBUTIONS INCREASED

Retirement plan contribution limits are increased regularly to keep up with inflation, but the additional “catch-up” contributions that are allowed after you reach age 50 have not increased since 2006.

The new proposals would increase these catch-up contribution limits, but the amounts and ages at which you qualify differ between the bills and among different types of accounts. Both bills would also index the catch-up contribution limit for IRAs to inflation.

EXPANDED ROTH IRA ACCESS

Under current law, SIMPLE and SEP IRAs are not allowed to accept Roth contributions from employees but both versions of this bill would change that. Matching contributions would also be eligible to be made on a Roth basis, whereas they are currently only allowed on a pre-tax basis. The House bill also includes a provision that would require catch-up contributions to be made on a Roth basis.

REDUCED LIMITATIONS ON ANNUITIES

The original SECURE Act expanded access to annuities in retirement plans by adding a safe harbor rule for ERISA fiduciaries in selecting a lifetime income provider. The SECURE Act 2.0 looks to further expand this access by removing the 25% cap on Qualified Longevity Annuity Contracts (QLACs) in retirement plans and eliminating the barriers to including annuities in plans and IRAs from RMD regulations.

QUALIFIED CHARITABLE DISTRIBUTION (QCD) LIMITS INCREASE

A growing number of taxpayers in recent years have taken advantage of the ability to gift up to $100,000 of their required minimum distribution to charity. This allows non-itemizing taxpayers to still receive a tax benefit from that deduction, as the amount donated would otherwise have been subject to ordinary income tax rates. The House bill would index that $100,000 limit for inflation and allow a one-time QCD of up to $50,000 to a split-interest entity such as a charitable remainder annuity trust (CRAT) or charitable remainder unitrust (CRUT).

OTHER ITEMS

There are several other provisions included the bills that will impact some taxpayers: • Increased income limitations for the

Saver’s credit. • Expanded automatic enrollment in 401(k) and 403(b) plans. • Employer matching contributions based on student loan payments. • Expanded tax credits for small businesses who set up new retirement plans. Due to the overwhelming support these bills currently enjoy, we expect something to be passed in the not-to-distant future, but the specific provisions are subject to change. Chris Benson, CPA, PFS, is an MACPA member, and a principal with LK Benson & Company.

FOR PAYABLES

Slash the time your clients spend on bill approvals and payments

Send Bill.com your bills

Scan or email your bills to Bill.com. Our automated system takes it from there.

How It Works

View and approve them online

Bill.com routes to approvers and provides one-click access to any needed backup docs.

We pay when you say

Bill.com prints and mails the checks or pays electronically & syncs with your software.

Integrates with QuickBooks, Xero, Sage Intacct, Oracle NetSuite, Microsoft Dynamics GP, and Microsoft Dynamics 365 Business Central.

BENEFITS

FULL PAGE Why is it better? ADUnlimited online storage of scanned/emailed/faxed bills, contracts, etc. Automatic routing of bills for internal approval – online or mobile One-click payment of bills via domestic ACH, international wire, or Vendor Direct virtual card payment

ACCOUNTING SOFTWARE ONLY

Checks and electronic payments are sent with full voucher/remittance information

Setting permissions and security so the right people can view, approve, pay bills

Ability to view status of any bill, anywhere, anytime – online or mobile

Online access to all cleared checks - searchable by customer/invoice number

Automatic sync of vendors, bills, and payments with accounting software

Intelligent Virtual Assistant eliminates data entry by capturing invoice information automatically

TYPICAL ONLINE BILL PAYMENT

Approve or deny a payment anytime, anywhere

Our mobile app gives you 24-hour access to your business so important bills get paid on time. Get the tools, training, and advice you need for growing your firm with Bill.com. Visit accountants.bill.com to learn more.