There’s a lot of noise around the SECURE Act 2.0 and how it will change certain aspects of retirement for everyone. In order to know about the SECURE Act 2.0, we must first understand the original SECURE Act.
What is the SECURE Act?
The SECURE Act was initially passed in 2019 and its purpose was to help Americans with their retirement needs. It was established to increase access to retirement plans for small business owners and part-time workers and encourage older Americans to utilize all of their retirement savings in their lifetime. 💸
Some of the important legislation from the SECURE Act are as follows:
What is the SECURE Act 2.0?
The SECURE Act allowed Americans to enhance their chances of a successful retirement. With the changes made to it this year, it gives more opportunities on how to better save for retirement. 😄 Now we know the basics of the original SECURE Act, so let's compare how it has changed to the SECURE Act 2.0. Here is a list of changes created by the SECURE Act 2.0.
Required Minimum Distributions (RMDs)
Increased Catch-up Contributions
Employer Matching for Roth Accounts
Employer matching in retirement plans has previously been on a pre-tax basis only. This has been changed and will allow employers to match employee deferrals to Roth accounts on an after-tax basis, allowing the earnings to grow tax-free. Employers are allowed to offer this, however, it may take time for plan providers to update their plans and payroll systems.
Automatic Enrollment and Plan Portability
There has been a history of Americans reaching retirement with little to no savings. To combat this, in 2025 employers adopting new 401(k) and 403(b) plans will be required to automatically enroll eligible participants into their plans with at least a 3% contribution rate. This rate will increase 1% each year until it reaches at least 10%. This change also allows automatic portability of an employee's low balance in their retirement accounts to a new plan with another employer or cashing out their balance when they leave a job.
Student Loan Debt
There is a new incentive for employees to save for retirement while paying their student loans. Starting in 2024, employers can offer to “match” employees qualified student loan payments with a matching contribution to their retirement plan. This would allow employees who are overwhelmed with student debt and missing out on contributions to have an extra cushion on their retirement.
Another huge change would be the availability to rollover leftover 529 assets into a Roth IRA for the beneficiary. The rollover will be considered a contribution and must remain within the Roth contribution limits and will be subject to a lifetime limit of $35,000.
Defined contribution plans can add an emergency savings account that can accept contributions from non highly compensated employees starting in 2024. The contributions cannot exceed $2,500 annually and the first 4 withdrawals in one year from the account will be penalty- and tax-free. These contributions can be eligible for an employer match depending on the plan rules. The purpose of this legislation encourages employees to save for unexpected or short term expenses.
Qualified Charitable Distributions (QCDs)
For people ages 70½ and older will have the opportunity to elect up to $50,000 as a one-time gift to a charitable remainder unitrust, annuity trust, or gift annuity. Starting in 2023, this legislation expands the type of charities that can receive a QCD. These gifts must come directly from an IRA by the end of the calendar year to count as a qualifying charitable distribution.
The SECURE Act 2.0 provides more opportunities for Americans to save more towards retirement. 🤑 There are many changes to keep track of with this new legislation within the next few years, but you can depend on us experts to provide you with the information necessary for your specific situation. 🤓 Don’t hesitate to schedule a free 30 minute consultation with us with any questions or concerns about how these changes could affect you!
Disclaimer: This article is for informational purposes only and is not a recommendation of Fyooz Financial Planning, Natalie Slagle CFP®, or Daniel Slagle CFP®. Past performance may not be indicative of future results and may have been impacted by events and economic conditions that will not prevail in the future. Therefore, it should not be assumed that future performance of any specific security, investment product or investment strategy referenced in the article, either directly or indirectly, will be profitable or equal to the corresponding indicated performance level(s). No portion of the article shall be construed as a solicitation to buy or sell any specific security or investment product or to engage in any particular investment or financial planning strategy. Any reference to a market index is included for illustrative purposes only, as it is not possible to directly invest in an index. Indices are unmanaged, hypothetical vehicles that serve as market indicators and do not account for the deduction of management fees or transaction costs generally associated with investable products, which otherwise have the effect of reducing the performance of an actual investment portfolio.