Andy Friedmand Says SECURE 2.0 Should Pass After Midterms

Very few bills are likely to move in the lame duck session that historically grips Congress after mid-terms, but Washington insider Andy Friedman believes SECURE 2.0 (Securing a Strong Retirement Act of 2022) has an excellent shot.

“Right now, the Senate and House have each passed [their version of the] bills with only minor differences that are easily worked out. There’s nothing contentious there,” Friedman, founder and editor of The Washington Update, said during the “Tax Policy 2022: Considerations at the Midterm” webcast sponsored by State Street yesterday.

“I still believe this will pass in the lame duck session. This is one of few examples of bipartisan legislation that can move,” Friedman added.

The legislation will increase the required minimum distribution age from 72 to 75 and increase catch-up contributions for older retirement savers.

On the RMD front, the original Secure Act increased the age at which workers have to start making withdrawals from their retirement accounts to 72. Secure Act 2.0 would increase it once again to 73 by 2022, to 74 by 2029 and finally to 75 by 2032.

Asked if he thinks there is any chance that Congress would make RMD increases retroactive for 2022, Friedman said, “I don’t. That ship has sailed. I don’t think they’ll allow amendments to it. They’re right at the goal line and can get this passed, so they’re unlikely to entertain any major amendments at this stage.”

The bill is also rich in catch-up contribution upgrades. Secure 2.0 would allow people who are age 62 to 64 to contribute an additional $10,000 to their 401(k) or 403(b) plans, or an additional $5,000 to Simple IRA plans. Catchup contributions for these plans are currently $6,500 and $3,000, respectively, for savers 50 or over.

Meanwhile, beginning in 2023, these catch-up contributions would be taxed as Roth contributions, meaning they would be subject to income tax before being invested for retirement. The bill would also index the IRA catch-up contribution limit of $1,000 to inflation.

“This is the way Congress saves revenue from being lost. If catch-up contributions were put into a traditional IRA, it would wind up costing Congress revenue because of the tax deductions,” he said.

The legislation would also be a boon for employers who want to attract and retain employees with student loan debt. “It gives employers the ability to make retirement plan matching contributions for workers paying student loan provisions. It’s great for young people who come in with student loans and can’t afford to make retirement plan contributions yet. Their employers can do that,” Friedman said.

Another feature of SECURE Act 2.0 that should be useful to wealthier clients would allow taxpayers to make a onetime qualified charitable distribution of up to $50,000 from a qualified plan to a charitable remainder trust or charitable gift annuity. In addition, the onetime distributions will be indexed to inflation. The bill would apply inflation indexing to the qualified charitable distribution (QCD) limit (currently $100,000) for direct gifts to qualified charities.

“Everyone should be looking at this to avoid income and estate tax. It’s a great way to provide income for individuals and ultimately for charity,” Friedman said.

The frequent CNBC commentator also said he believes that Republicans are still overwhelmingly expected to take the majority in the House after the election on November 8, but the odds of the GOP controlling the Senate were diminished when the Supreme Court struck down Roe v. Wade and remanded abortion rights to states.

“Just on the numbers alone, it seems to me that Democrats will retain the Senate because Republicans need one more seat than Democrats right now. But it will be very, very close. There are a lot of tough races, but I do think that’s where we are,” Friedman said.