Where Secure Act 2.0 Gets Complicated: Hopkins, Levine, Treichel

But one question, Levine said, is “who actually benefits” from such a change?

This change “is only impacting a minority” of investors, he points out. “Roughly 80%-plus of the people today already take more than their required minimum distribution; if you’re taking more, there’s a reason for it: You need it. So someone telling you [that] you can take even less than you’re required to take now when you’re voluntarily taking more, doesn’t actually move your needle.”

But advisors will see their clients benefit from “potentially that ability to push back and defer longer; to just kick that can down the road for some,” Levine said. “The next solution becomes, if I can defer longer that means I can potentially convert more today at more attractive rates. Because once you hit required minimum distribution age, the RMD cannot be converted … with that in mind, by pushing back RMDs and also through the new [IRS] tables that we have, which lower the RMDs by about 5% or so at the starting ages, that would allow more individuals to convert more dollars at tax-efficient brackets, or before phasing out credits pushing themselves into a higher Medicare Part B premium, etc.”

Rothification

“We’re certainly headed toward a direction of ‘Rothification’” in Secure 2.0, Levine said. “This is the idea that over time people are going to have to use Roth IRAs. Not that long ago, just back in 2017, that was a major part of the Tax Cuts and Jobs Act; it was a huge pay-for, meaning they were going to require Rothification in order to lower the cost of the overall bill.”

That provision was removed after pushback, but “it’s being brought back [in Secure 2.0] for at least a portion of contributions,” he said. “Whereas some contributions would be required to be Roths, there’s this subtle push toward Roths with other — specifically we’re talking about ‘catch-up’ — contributions. Catch-up contributions under Secure Act 2.0 under the House bill would be required to be made to a Roth-style account” — Roth 401(k)s and 403(b)s.

However, “not all plans have plan Roth accounts today.”

What does that mean if the bill passes into law? “Does it mean that every plan must have a Roth option included in it? Otherwise it’s not going to allow catch-up contributions? Would we grandfather [plans]?” Levine asked. “It would really be very challenging to deal with that from an administrative perspective.”

Catch-Up Contributions, Auto-Enrollment

“There are so many little provisions” in Secure 2.0, like auto-enrollment and catch-up contributions, for advisors to share with clients, Treichel said.

The auto-enroll provision “misses the mark,” Treichel said, “because it’s starting with auto-enroll at 3% — but only for new plans. And then it has an auto-escalate at 10% … All those plans that are already out there will not be required” to add auto-enrollment.

One of the “oddest provisions” is an increase in catch-up contribution limits for those age 62, 63 and 64 to $10,000, Hopkins said.

Treichel agreed.

“If I put myself in the place of a plan administrator or plan fiduciary, that’s great … we’re trying to do something nice by increasing that catch-up limit, but then we’re doing it at these specific ages. … Even with the communication strategy for your participants in a plan, that’s just really complex.”

The Senate bill simplifies this provision, Levine pointed out, in that it raises the catch-up contribution limit to $10,000 beginning at age 60.