On December 23, 2022, President Biden signed into law a $1.7 trillion budget bill that included some incredibly major changes for the retirement plans that people like you and I use each day. This section of the legislation has been dubbed the SECURE 2.0 Act of 2022. (Just for reference, SECURE stands for “Setting Every Community Up for Retirement Enhancement” and the first Act was created back in 2019.)
What exactly does SECURE 2.0 change and how will this affect the way you save your money? Here are 12 important points you’ll want to know.
1) Automatic Enrollment into a Workplace Retirement Plan
Starting in 2025, employers will be able to automatically enroll new employees into 401(k) and 403(b) retirement plans. Previously, enrollment was only voluntary and had to be initiated by the employee. However, now employers will be able to get new employees on track starting from Day 1. The contribution rate will be a minimum of 3%, but employees have full control to change the rate at any time they wish.
2) Incentives to Contribute to Your Retirement Plan
How would you like a small bonus or gift card for contributing to your 401(k)? In the past, employers weren’t permitted to make financial incentives like this. However, as of 2023, they can now use these tactics to encourage more retirement plan participation among their employees.
3) Roth Employer Matching
Most 401(k) plans have been offering participants the chance to contribute to either a traditional or Roth-style account for some time. However, employer matching always had to be pre-tax (traditional style). This meant that those people who opted for a Roth-style account essentially had two buckets of money with different tax implications.
Going forward, employers can now make Roth contributions to employees with Roth-style accounts. That simplifies the situation because now 100% of their money will be post-tax (as they probably intended).
4) Saver’s Match
If you previously qualified for the Saver’s Credit when you filed your taxes, then starting in 2027 it will be replaced with what’s being called the Saver’s Match. This will be 50 percent of the contribution to an eligible IRA or retirement plan up to $2,000 per person. Income limits will apply. The idea is to encourage young and low-income workers to utilize their retirement plans.
5) Catch-Up Contributions for 60-Year Old’s
For several decades now, most workplace and private retirement plans allowed for catch-up contributions for older workers. This is where the IRS extends the limits for saving money into a retirement plan. For example, as of 2023, the catch-up contribution for 401(k) plans is an extra $7,500 above the limit of $22,500 for everyone else.
Up until now, catch-up contributions were only available to those people aged 50 and older. However, starting January 1, 2025, there will be new additional privileges for those people aged 60 through 63. Workers in this bracket can make even greater catch-up contributions of $10,000 annually to a workplace plan. This number will also likely increase every few years for inflation (as commonly happens with all retirement plans).
6) Tracking Lost Retirement Savings
Every year, millions of dollars in retirement plans go lost or unclaimed. Although this can happen for many reasons, one of the most common is that the account simply forgot about it (i.e., never switching it over when they changed jobs).
Part of the SECURE 2.0 Act will be to implement a searchable database for lost retirement benefits so that the original account owners can reclaim them more easily. The Department of Labor has been tasked with its creation within the next two years.
7) Emergency Expense Distributions
If you’ve ever run into an emergency and wanted to make a small withdrawal from your retirement account but couldn’t because you knew you’d be hit with the 10 percent penalty, then that’s about to change. Beginning in 2024, account owners will be able to make an emergency distribution of up to $1,000 without penalty. You’ll only be allowed to do this once per year, and if you don’t pay it back, then you won’t be allowed to take out another emergency distribution for three more years.
8) Emergency Savings
In conjunction with being prepared for emergencies, account owners will also now be able to create a “sidecar” account tied to an existing defined contribution retirement plan. This will be a Roth-style account that can be used for emergencies where the first 4 withdrawals per year would be tax and penalty-free. Annual contributions may be up to $2,500 (at the discretion of the employer).
9) Employer Matching for Student Loan Debt
Employees with student loans could soon start seeing an extra benefit provided by their employer starting in 2024. Just like some companies make 401(k) matching contributions, they’ll also be able to “match” employee student loan payments.
Note that these matches will be made to the employee’s retirement account and not to the individual directly. This would allow the employee to offset their own retirement contributions and essentially double their student loan payment.
10) 529 Plan to Roth Rollover
Parents who are saving up for their children’s higher education expenses using a 529 plan will soon have another good use for it. If the child goes to college and doesn’t use up all of their 529 benefits, the assets can be rolled over into a Roth IRA for the beneficiary. They must first wait 15 years and there’s a lifetime limit of $35,000.
11) RMD Age Increase
One of the most notable changes of the first SECURE Act was that the age for RMDs (required minimum distributions) changed from 70 to 72. RMDs are when account owners of traditional-style retirement plans have to start making withdrawals of a certain amount or face a hefty penalty.
With SECURE 2.0, this age has moved again. Starting in 2023, retirees now can be 73 years old before they have to start taking RMDs. This age is scheduled to move again in 2033 to 75 years old.
12) Roth RMD Elimination
Unlike Roth IRAs, employees who contributed to a Roth 401(k) still had to take RMDs. However, under the new rules, RMDs would no longer be required for either type of Roth account.
If you’d like to contribute more to your retirement plans, then you’ll first need to make sure your budget is under control. The best way to do that is to track your spending using a helpful budgeting app. Buxfer does just that by connecting with all your bank and credit cards and organizing the data in real-time. This gives you a comprehensive overview of your spending habits so that you’ll always know if you’re on track or need to make some adjustments.
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