Secure 2.0 was passed as part of the Omnibus bill at the end of 2022. As I have gone through the different provisions, the best analogy that I have been able to come up with is that Secure 2.0 is like an ex-girlfriend; there are redeeming qualities, but I really wish it had just never happened.
Unfortunately, much of Secure 2.0 is more of the same from congress…many of the laws are in fact written by lobbyists and the laws passed ultimately benefit the lobbyists, or more accurately, the special interests that they represent. Each major point very well could be a blog unto itself. We’ll leave that for another time as I’m going to write this from a ten thousand foot view perspective.
Look at a long form article here.
That Captivating Smile
Like that captivating smile that initially grabbed your attention, the Required Minimum Distribution (RMD) age change seems to be what everyone notices first. There is good reason for this too, as this change will affect everyone age 73 and younger who has a tax-deferred retirement account. The RMD age essentially immediately increases from age 72 to age 73 and is set to increase to age 75 starting in the year 2033.
While I’m not opposed to this provision as it gives additional flexibility in retirement tax planning, I don’t see it having much impact for the average retiree. As long as the tax code allows for unlimited Roth conversions, there is already a judicious amount of flexibility built into the distribution of tax deferred retirement accounts to give too much attention to the RMD age changing.
It is also worth noting that required minimum distributions are simply the government’s distribution plan for your money. If you work with QED Wealth Solutions, we don’t follow the government’s plan for your money. Instead we proactively plan your retirement income optimized around your goals with an eye on minimizing your lifetime tax liability.
Other Redeeming Qualities
The one home run that almost made this legislation “marry me” material is the provision that automatically enrolls eligible employees into their company’s 401k or 403b plans. There has been so much research showing that automatic enrollment leads to higher savings rates…let’s be honest with ourselves, it takes a lot to move us off the status quo. This creates a new status quo in which funding your employer sponsored retirement plan is automatic. Of course, everyone will have the opportunity to opt out, but of all 400 pages of this legislation, I believe this provision will make the largest difference.
Another great quality of Secure 2.0 is the creation of a retirement account database through the Department of Labor. For all those that think this might be government overreach…don’t worry, the government already knows about it…they were provided with your social security number when the account was opened. Many times over the last decade I have sat across from a client who has told me they think they have a 401k with a previous employer, but they are unsure. This should take much of the ambiguity out of situations like that and allow for a much quicker and easier flow of information. This will take some groundwork to be laid, as it is not set to launch until 2025.
The Red Flags
While there are certainly some head scratchers in this legislation, there is not one single thing that makes me want to “break up” with it. It is more a culmination of red flags that, in aggregate, make me want to move on.
My biggest complaint about the legislation is that it makes things too convoluted to have a clear picture of what to do. Peter Lynch is famous for saying “Never invest in anything you can’t illustrate with a crayon”. Obviously, our legislators did not take this approach as Secure 2.0 is a measly 400 pages of the greater 5600-page Omnibus bill.
As a financial advisor I have read around 25 articles each doing their best to simplify this act, and as I am writing this article I am still referencing back and forth to confirm what this bill says and what it will mean to the average consumer. While complex laws surrounding retirement provides me with a great deal of job security, I simply refuse to believe that this is the best we can do for those who are working to secure their future.
What do you do when you can’t break up?
Obviously Secure 2.0 is now law and if you are an American citizen reading this, then you have no choice but to accept it in all its omnibus glory. Ultimately you have 3 choices:
1. Ignore it and lose out on the financial benefits gained from understanding the rules.
2. Take the time to study it yourself.
3. Contact us and let us do the heavy lifting for you.
This post is for educational and entertainment purposes only. Nothing should be construed as investment, tax, or legal advice.