The Setting Every Community Up for Retirement Enhancement Act (SECURE Act) was passed by Congress in 2019 to help Americans prepare better for retirement. Building upon its predecessor, the SECURE Act 2.0 Retirement Savings Act was signed into law in late 2022, further bolstering the retirement system and expanding the benefits of the original act.
Aiming for a Secure Retirement
A 2023 Federal Reserve survey revealed that nearly three-fourths of non-retired adults have some retirement savings, but 28% have none at all. Moreover, only a third of these individuals believe their retirement savings are on track. With lower savings and longer lifespans, the retirement security crisis in the US is gaining intensity. The SECURE Act 2.0 is the government’s latest effort to improve retirement outcomes for millions of Americans.
Key Provisions of the SECURE Act 2.0
The SECURE Act 2.0 introduces numerous provisions to simplify saving for retirement in individual retirement accounts (IRAs) and workplace plans. Here are nine key changes that have been implemented or will take effect in the coming years:
1. Changes to required minimum distributions
The age for starting required minimum distributions (RMDs) has increased from 72 to 73, with further increases to 75 by 2033. This extension gives individuals more time to grow their retirement savings. Additionally, the penalty for not taking an RMD has been reduced, and RMDs for Roth 401(k) accounts will be eliminated from 2024.
2. Higher catch-up contributions
Individuals aged 50 or older can now make higher catch-up contributions to workplace plans, with the amount increasing to $10,000 annually starting in 2025. Catch-up contributions to workplace plans must also go into Roth accounts in after-tax dollars from 2026 onwards.
3. Employer matches
Under the SECURE Act 2.0, employers can now make matching contributions directly to an employee’s Roth 401(k). This change allows the money to grow tax-free, providing employees with greater benefits for their retirement savings.
4. Qualified charitable distributions (QCDs)
The SECURE Act 2.0 expands the rules for qualified charitable distributions, allowing individuals aged 70½ or older to elect a one-time gift up to $50,000 to a “split-interest entity” that pays a fixed percentage for life.
5. Automatic 401(k) enrollment
Starting in 2025, most companies must automatically enroll eligible employees into their retirement plans. This automatic enrollment ensures that more individuals have the opportunity to save for their retirement.
6. Emergency 401(k) distributions
Beginning in 2024, employers can offer non-highly compensated employees the option to link their retirement plan to an emergency savings account. Annual contributions are limited, and withdrawals are tax and penalty-free.
7. 529-to-Roth IRA conversions
The SECURE Act 2.0 allows 529 beneficiaries to roll over up to $35,000 from a 529 account into a Roth IRA. This change provides flexibility for families to access funds for education costs.
8. Student loan matching contributions
Employers can now match contributions to elective deferrals and student loan payments for employees with outstanding student loan debt. This change helps individuals manage their student debt while still benefitting from employer contributions.
9. Saver’s Match
Starting in 2027, low-to-middle-income earners will be eligible for a federal matching contribution of up to $2,000 annually. This matching contribution will be deposited directly into IRA or employer-sponsored retirement plans.
Financial Literacy and Retirement Savers
Financial literacy plays a crucial role in retirement readiness. Studies have shown that those who are more financially literate experience less stress and are better equipped to manage competing financial priorities. The SECURE Act 2.0 provides more opportunities and support for retirement savings, but everyone’s financial situation is unique. Consider working with a financial advisor or online platform, such as Empower, to understand how the SECURE Act 2.0 applies to your specific needs.
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