(844) 845-4219 » Secure Act 2.0: Retirement and Student Loans

The Politics For Your Wallet: Federal Government Proposes Changes to Student Loans and Retirement Savings



The last lingering sense of bipartisanship was on display last week in Congress. In a nearly unanimous vote, the House of Representatives passed a bill that could help Americans save more money before they retire. On the other hand, Biden proposed a student loan bill that could see criticism from both sides of the aisle.

Biden’s federal budget proposal requests billions of dollars for education. While a large chunk of that would go towards K-12 schools, Biden hopes to use a portion of that to expand student loan resources.

His proposal didn’t mention the student loan forgiveness he promised during his campaign, nor did it mention extending the May 1 pause on student loan payments. It did, however, suggest improvements for Income-Driven Repayment and Public Service Loan Forgiveness programs and increased customer support resources.

Unlike Biden’s budget proposal, the Secure Act 2.0 is already making significant progress. Approved by the House of Representatives, it will be going to the Senate next. Writers at the Washington Post believe that the Senate might tweak the bill, but it could still be made into law this year.

The bill would expand 401(k) benefits for part-time employees, let Americans save for longer by raising the minimum distribution age, and more.

Both pieces of legislation have the potential to help a lot of people, but like anything in life, neither is totally perfect.

Securing your taxes, not your savings

What’s supposed to help Americans save might just raise their tax bills.

The retirement bill will be changing the minimum withdrawal age for retirement accounts. Currently, people over the age of 72 are required to start withdrawing money from their retirement savings. The Secure Act 2.0 would gradually move the minimum to 75 over the next decade.

This gives people more time to work and save money before they have to start making withdrawals. And initially, Brookings Institution fellow Mark Iwry told the Wall Street Journal, “It feels like a tax cut.” Iwry also used to oversee national retirement policies while at the U.S. Treasury Department.

Having more time to save up is important, but once someone is required to make their withdrawals, pulling out larger sums of money in a shorter amount of time can mean higher taxes.

According to the Wall Street Journal, IRA specialist Ed Slott said that the increased minimum age for withdrawals “sounds better than it is.” Really, the age increase helps financial service organizations make more money since accounts with higher balances tend to pay more in fees.

The bill was written with another sad truth in mind: it’s harder for Americans to retire.

Rep. Kevin Brady, a co-sponsor of the bill said that with “Americans working longer, we want them to keep saving longer.”

The Secure Act 2.0 will do more than just raise the minimum age. If passed, it would:

  • Allow ages 50+ to contribute an extra $6,500 per year to a 401(k)
  • Allow ages 62-64 to contribute an extra $10,000 per year to a 401(k)
  • Make part-time employees eligible for 401(k)s after two years instead of three
  • Require businesses to automatically enroll employees in new 401(k) or 403(b) plans
  • Allow retirement plan sponsors to offer cash or other incentives for signing up
  • Create a national Retirement Savings Lost and Found Database

Legislatures made this bill profitable for the government as well. Starting in 2023, anyone over the age of 50 who makes extra payments to their 401(k)s will have to start making those payments to a Roth Individual Retirement Account. This will force people to give up the tax deductions they would get from a 401(k), generating about $36 billion in tax revenue.

Almost $3 billion for customer service

Before beginning his term as president, Biden promised to cancel $10,000 in undergraduate student loan debt per borrower. While he has provided some debt relief, he gave it to targeted groups rather than the broader population.

Based on his budget proposal, he probably won’t be doing it any time soon.

His proposal requests $88.3 billion for educational resources. The budget proposes a number of things for higher education – like doubling the Pell Grant award and providing more funding for HBCUs – but it doesn’t mention any student loan debt forgiveness.

When it comes to loans, Biden is asking to provide an additional $2.7 billion in funding for the Federal Student Aid office, Business Insider reports.

The additional funds would:

  • Revamp student loan providers’ customer support
  • Improve Income-Driven Repayment and Public Service Loan Forgiveness programs
  • Aid borrowers who have to switch loan providers due to theirs shutting down

Many have complained about hours-long wait times when calling student loan customer support, so extra help is definitely needed.

The pause on student loan payments is scheduled to end on May 1 and Biden hasn’t said he will extend that date again. And in his budget, he doesn’t request money for broader student loan debt relief.

But some people are speculating that he plans to do so in the future. Biden’s budget proposal suggests that all student loan forgiveness be tax-exempt. In most cases, student loan forgiveness is treated as income and therefore taxed by the IRS. If Biden’s budget is passed as is, that would be eliminated for all borrowers.

Some experts say that Biden should either extend the pause on loan payments or forgive student loan debt. Business Insider says the chair of the Senate education committee, Patty Murray, is one of those people.

“Everything we are asking to be done can be done at an administrative level,” Murray said. “That is the quickest way to get this moving. And we are encouraging them, asking them, begging them to please do that.”

TrustScore 4.6


Contact us at (844) 845-4219

How Much Could You Save?

Just tell us how much you owe, in total, and we’ll estimate your new consolidated monthly payment.