The SECURE Act stands for ‘Setting Every Community Up for Retirement Enhancement’. This updated legislation from the previous SECURE Act of 2019 provides a slew of changes that could help strengthen the retirement system—and Americans’ financial readiness for retirement. Many of the provisions are not effective until January 1, 2024, but some optional provisions are effective immediately.
The law builds on earlier legislation that increased the age at which retirees must take required minimum distributions (RMDs) and allowed workplace saving plans to offer annuities, capping years of discussions aimed at bolstering retirement savings through employer plans and IRAs.
Here are some of the highlights of SECURE Act 2.0:
For people who are employed and receive a W2 paycheck:
Catch up contributions – Participants ages 60-63 can contribute the greater of $10k or 50% more than the standard catch-up amount to their defined contribution plan beginning in 2025. BUT all catch up contributions for workers earning more than $145k/yr. must be Roth contributions (i.e., after tax) starting in 2024. Plans will have to offer a Roth option to allow catch up contributions of any kind. The catch-up amount and income limit are indexed for inflation.
Additional benefits your employer may offer:
Annuities in 401k Plans* – Qualified plans can now use annuities, subject to specific actuarial rules. Employers are encouraged to offer guaranteed lifetime income options in their retirement plans. Effective January 1, 2023.
Employers can make matching contributions based on student loan payments – Beginning in 2024, employers can make employer matching contributions for their employees’ student loan payments, even if the employees aren’t contributing to their retirement plan.
Automatic enrollment mandatory for new defined contribution plans – Beginning in 2024, new defined contribution plans must adopt automatic savings provisions and enroll new hires at a savings rate of at least 3% of pay and automatically increase their savings rate by at least 1%/yr. up to 10% (but not to exceed 15%).
Expand Plan Eligibility to Long-Term Part-Time Employees* – Employees who have worked at least 500 hours for 3 consecutive years will be allowed to participate in the company’s retirement plan. Effective January 1, 2023.
Exemption from 10% Early Withdrawal Penalty for Certain Emergency Expenses* – In the case of financial hardship, up to $1k may be withdrawn per year penalty free from a 401k or IRA. The employee has the option to repay the distribution within 3 yrs. No further withdrawals permitted during the repayment period unless the distribution is repaid in full. Effective January 1, 2023.
Emergency Savings Account – Beginning in 2024, employers can establish an emergency savings account where employees can save up to $2500 in a Roth style account. Distributions will be treated as a qualified distribution from a Roth account (i.e., tax free if requirements are met).
For people who are self-employed:
Expanded Roth Contributions* – Roth contributions are now allowed for SIMPLE and SEP IRAs. Employer contributions and employee deferrals can be designated as Roth. Effective January 1, 2023.
For people with unused 529 funds:
529 Plan Rollovers to Roth IRAs – Starting in 2024, beneficiaries of 529 plans may roll over up to $35k during their lifetime to a Roth IRA. The rollovers will be subject to annual IRA contribution limits and the 529 must have been open for more than 15 yrs. Contributions made in the last 5 yrs. are not eligible for rollover.
For people who are near or at retirement:
Delayed required minimum distributions (RMDs)* – The age at which participants must begin taking distributions from their retirement accounts increases from 72 to 73 beginning January 1, 2023, and to 75 in 2033.
– NO RMDs will be required for Roth 401k accounts in the future
*Note these provisions will take some time for the IRS, Custodians and Employers to create policies and procedures for these options to be available.
But wait…there’s more!
There are many more changes included in the 4000+ page document that is the SECURE Act 2.0. We’ve highlighted just a few here.
The legislation was passed to help Americans save for retirement. Currently just 62% of workers are confident that they will have enough saved for their future. Saving for a comfortable retirement can be a significant challenge This Act was designed to help employers play a more active role in helping their employees plan for a secure retirement.
Our goal is to help our clients plan for a successful future. We would be happy to meet and discuss how these changes could affect your plan and goals.
For new clients, we would love to help you create your own unique plan to reach your goals and feel secure about your future. Contact us today to see how we can help!