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3 ways Congress' SECURE 2.0 bill could help your retirement savings last longer

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Biden spotlights effort to rescue union pensions

President Joe Biden sought to reassure frustrated blue-collar voters in Ohio by highlighting federal action to shore up troubled pension funding for millions now on the job or retired. (July 6)

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The U.S. House of Representatives recently passed a new retirement bill called SECURE 2.0, which is designed to build upon the SECURE Act of 2019.

SECURE 2.0 aims to make it easier for workers to prepare for retirement, and there are three major changes that could help your savings go further.

  • It proposes raising the minimum age at which you have to start taking required minimum distributions.
  • For every dollar an employee pays toward eligible student loans, the employer can match those contributions in the worker’s 401(k).
  • It would raise the limit on catch-up contributions for workers between 62 and 65 to $10,000.

The new bill is still under review in Senate and isn’t law just yet, but here’s what to expect if it passes.

1. Increased RMD age

If you’re saving in a 401(k) or traditional IRA, you’ll need to start making required minimum distributions (RMDs) once you turn 72 years old — whether you’re ready to retire at that age or not.

This is because you’ll owe income taxes on your withdrawals, and Uncle Sam wants that money eventually. RMDs ensure that you’re not leaving your savings in your retirement fund indefinitely. The original SECURE Act raised the age you must start taking RMDs from 70 1/2 to 72, and SECURE 2.0 proposes increasing it again to age 75 by 2032.

If you plan to continue working well into your 70s, this could help your money last longer. Right now, you’ll need to start making withdrawals at age 72 even if you don’t need that money. Under the new bill, though, you can leave your savings in your retirement account for longer, giving that money more time to grow.

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2. Student loan benefits

SECURE 2.0 also aims to help those with student loans save more for retirement. As more older Americans take on student loan debt, this bill could potentially help workers of all ages save more.

One proposal within the bill is matching 401(k) contributions from employers. For every dollar an employee pays toward eligible student loans, the employer can match those contributions. So, for instance, if you paid $200 toward your loans, your employer could contribute up to $200 to your 401(k).

This proposal is intended to help workers avoid having to choose between paying down debt and saving for retirement. Many 401(k) plans already offer employer matching contributions, and this bill would ensure that workers paying off student loan debt don’t have to miss out on those benefits.

3. Higher catch-up contributions

Under the current law, those 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 between the ages of 62 and 65. If you’re falling behind on your savings and are able to take advantage of these catch-up contributions, this higher limit could go a long way toward building a robust nest egg.

Again, SECURE 2.0 has only passed in the House of Representatives right now, and it’s likely the Senate will come up with its own draft of the bill before anything passes. But by staying updated on the latest retirement laws, you can ensure you’re maximizing your savings and heading into your senior years as prepared as possible.

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