Understanding Secure Act 2.0 For Better Retirement Planning

Secure Act 2.0 was enacted on December 29, 2022, with its acronym meaning "Setting Every Community Up for Retirement Enhancement." Its primary purpose is to enhance opportunities for retirement savings.

Consisting of more than 90 innovative provisions, the act is designed to promote savings, improve incentives for businesses, and provide greater flexibility for individuals saving for retirement in the long run. The law is predicted to impact all Americans of different age ranges.

The Significance of Secure Act 2.0

A recent survey conducted by The Federal Reserve disclosed that merely 25% of non-retirees do not have any retirement savings. A potential crisis in retirement savings in the United States could have a significant impact. Secure Act 2.0 represents the most recent endeavor by Congress to tackle this pressing issue.

For those curious about the Act's essence, as described by Jim Probasco on Investopedia, it "is a legislative measure designed to substantially enhance retirement savings options, including 401(k)s and 403(b)s."

The Act includes three primary goals: promoting higher retirement savings, improving retirement regulations, and lessening the financial load on employers when creating retirement plans.

These alterations have introduced new retirement terms referred to as the "Rothification" of funds.

What Changes Were Made?

This new law incorporates several innovative financial tactics. Here are key aspects to consider, focusing on the transitions and potential impacts:

Automatic 401(k) Transfers:

• Secure Act 2.0 now permits automatic transfers of previous retirement accounts with balances below $5,000 to the new employer's plan.
• Starting in 2025, Secure Act 2.0 mandates employers to enroll eligible employees. automatically into a 401(k) or 403(b) plan, with contributions increasing incrementally.

Roth Matching:

• Employers can offer employees the choice of receiving vested matching contributions to Roth accounts.

Enhanced Catch-Up Contributions:

• Secure Act 2.0 introduces a new catch-up contribution limit for participants ages 60 to 63 effective for taxable years beginning 01/01/2025.

New Required Minimum Distribution (RMD) Rules:

• SECURE Act 2.0 increased RMD age from 72 to 73 effective for 2023.
• RMD will further increase to age 75 starting 01/01/2033.

Inherited Retirement Account Distributions:

• Non-spouse beneficiaries are required to take inherited account distributions within 10 years.

Emergency Savings:

• Eligible participants can establish an emergency savings account, funded by post-tax Roth contributions. Please check with your employer for eligibility.

Qualified Charitable Distributions (QCDs):

• Individuals aged 70½ and above can make nontaxable distributions from an IRA to a qualified specific charitable instruments/entity (charitable gift annuities, charitable remainder unitrusts, and charitable remainder annuity trusts).

Employer Contribution Match for Student Loan Payments:

• This is effective 01/01/2025 employers can make a matching contribution to 401(k), 403(b), or SIMPLE IRA in the amounts that the employee is making to the student loan. This is to help employees save for retirement even if they need to use their income for student loans.

Small Business Tax Credit

Small employers can receive tax credits for contributing to new plans for the first five tax years. These tax credits aim to encourage small businesses to offer employee benefits and help offset some of the costs associated with setting up and maintaining these plans.

529 College Savings Plans to IRA Conversions:

• Funds from a 529 plan can be rolled over to a Roth IRA under certain conditions, effective 01/01/2021.

Expanded Access to Retirement Funds:

• Domestic abuse victims and disaster victims can withdraw the lesser of $10,000 or 50% from retirement accounts under specific circumstances, effective beginning 01/01/2024.

Conclusion

Given the evolving tax landscape and personal financial situations, it's advisable to consult financial advisors, tax experts, or estate planning professionals. Regularly assess and adjust your financial strategy to align with changing circumstances and ensure your retirement plans align with your goals. By including some of these optional provisions, a more prosperous retirement could be within reach.

How IRAR Helps

Bookmark this page if you are interested in learning more about these proposed retirement plan changes. You can also express your opposition and have your voice heard here.