How SECURE Act 2.0 Expands Retirement Savings Opportunities

In December 2022, Congress passed the SECURE Act 2.0 to address the country’s retirement crisis. The provisions from this bill hope to offer several savings opportunities for all workers. The changes introduced by this bill will improve retirement outcomes for years. Here are some of the top savings opportunities created by the SECURE Act 2.0.

Automatic 401(k) Enrollment

Before the SECURE Act 2.0, most retirement plans were grandfathered in. The SECURE Act 2.0 introduced an automatic 401(k) enrollment option for businesses and individuals. By 2025, this provision will be in effect for new 401(k) and 403(b) plans.

This new provision will make it easier for younger workers to save early for retirement. Instead of catching up and making up for the years in which they weren’t saving, workers will automatically be enrolled and take advantage of their workplace retirement plans.

Greater Catch-Up Contribution Limits

There are also greater provisions for workers over the age of 50. When workers over 50 want to catch up on contributions to their retirement plans, they can make higher catch-up contribution limits courtesy of the SECURE Act.

Beginning in 2025, workers aged 60 to 63 will be able to make catch-up contributions to their employer-sponsored plans of up to $10,000 annually. Compared to the previous catch-up contribution amounts, that is 50% greater than the regular amount.

For workers over 50, this provision requires that all catch-up contributions be on an after-tax basis. This does not apply to workers who earn less than $145,000. Starting in 2024, the current $1,000 catch-up contribution limit will be indexed to inflation for workers aged 50 and over.

Emergency Savings Contributions

Another helpful provision is the emergency savings account contribution. This provision will allow companies to offer automatic contributions to a separate emergency savings account for their employees. However, it will be offered to employees who are non-highly compensated.

This provision will allow employees to withdraw funds for qualifying emergencies without penalty. Even if the employee leaves the job, their emergency savings account can be converted to a Roth account.

Many American workers don’t have $1,000 in their emergency savings accounts. This provision will benefit many employees and allow them to cover unexpected expenses without touching their retirement plan.

Ability to Match Student Loan Payments

Another benefit of the SECURE Act 2.0 is the ability to match 401(k) contributions with student loan payments. Beginning in 2024, companies will be able to match 401(k) contributions based on the student loan payments of their employees.

The rules for matching and the amounts offered will vary from one company to another. However, companies will match a percentage of the employee’s contributions to a particular amount.

Like the emergency savings account, this provision will help employees save money. Many workers have had to choose between paying off student loan debt and investing in retirement. This provision will allow employees to obtain credit for student loan payments and put it towards their retirement plans.
Changes to Required Minimum Distributions
Before this bill was passed, workers were required to pay income tax on whatever money they took out of their pre-tax retirement accounts. Now, this bill extends the length of time that required minimum distributions (RMDs) apply. If workers turn 72 after 2022, and their 73rd birthday is before 2030, their RMDs will start applying at 73 years old. This will allow more workers to invest depending on their financial situation.

Conversions from 529 to Roth IRAs

529 retirement plans have always been a gamble for workers. While it’s a great savings option for parents who want to pay for their children’s education, it can become costly if the money isn’t withdrawn for qualified educational purposes. Thanks to the SECURE Act 2.0, workers can convert $35,000 from their 529 plan to a Roth IRA with no penalties.

However, the 529 accounts must have been opened for more than 15 years to be eligible.
This provision will make it easier for parents to create long-term financial options for their children. Converting funds from a 529 plan will allow parents to pass generational wealth to their children.

Small Incentives for 401(k) Participation

Before this bill, companies were limited to just offering long-term incentives like contribution matching to their employees for participation in retirement plans. Now, the SECURE Act 2.0 allows employers to offer small incentives like low-value gift cards to workers to participate in retirement plans. These small incentives may convince employees to participate in their workplace retirement plans. These short-term incentives may influence workers to look into different retirement plans.

Saver’s Match

Previously, workers could only claim a tax credit for their retirement account contributions. The SECURE Act 2.0 will allow workers to participate in a saver’s match opportunity. Beginning in 2027, workers will no longer obtain a tax credit on their annual return for investing in their retirement plans. They will be offered a saver’s match, with funds deposited into a qualifying IRA or retirement plan.

How Do These SECURE Act 2.0 Provisions Affect Future Retirement Plans?

The provisions of this Act were created to benefit younger and older workers. For younger workers, these incentives were designed to encourage early retirement savings. These provisions help younger workers ensure that their savings grow over time, despite what happens throughout their careers.

For older workers, these incentives were designed to help catch up with retirement savings and protect their funds over time. Ultimately, these provisions are designed to help workers overcome the issues of retirement savings.

Call THE South Florida Estate Planning Attorney – Barry Siegel

When you need to speak with someone about how the SECURE Act 2.0 affects your retirement plan, speak with an Estate Planning attorney from The Siegel Law Group, P.A. today. Call our office at (561) 955-8515(561) 955-8515 to schedule a complimentary consultation or submit our online contact form to schedule a consultation today. If you have any questions, do not hesitate to contact us.